How the Current Economic and Political Climate is Shaping the Property Market
Those with a weather-eye on the property market over the last 12 months will have observed the unusual market conditions which seem to be ruling property transactions. These have been most aptly felt in the south of England and have impacted the traditional patterns of property investment across the region – and beyond. We are, of course, talking about the perceived nature of the property market.
However, what’s clear right now is that those with a generous budget have an opportunity. Buyers with the budget to afford high-value homes are in a unique position to choose from a broad range of properties. Something that experienced property consultants in London and across the UK can help with.
Uncertainty surrounding the property market is, at its core, a symptom of the growing concern of post-Brexit Britain. However, the reality is that we don’t yet know what a post-Brexit Britain will look like and what effect, it’s likely to have on the property market.
Symptomatic of the current climate is the fact that many high value homeowners have chosento re-think their long-term property investments. Releasing equity has become more prominent. What’s apparent is that the current economic and political climate is shaping the property market – though in a different way than you may think.
According to research conducted by Hometrack, leading property market analysts, there is long-term correlation between the median size of mortgage debt and housing market activity. Equity-rich homeowners are capitalising on low mortgage rates by re-mortgaging. Across London and the surrounding areas, this trend is quite prominent.
Expert property professionals and mortgage lenders are united in their view that those borrowing more money against the value of their home are using the liquidity to bolster the chances for their children to enjoy a prosperous future whilst enjoying a greater quality of life. Citing reasons such as making long overdue home improvements and creating capital to pay for university or school fees – or even helping children or grandchildren gather enough money for a deposit on a home of their own. The increased borrowing rate has been observed by London property finder professionals and is part of the present economic and financial climate.
Across the whole of the UK, mortgage debt, or the balance of borrowing against repayments rose steadily at a rate of 3.8% between the end of 2015 and the end of 2017, according to figures compiled by UK Finance.
Looking at individual areas of the UK,in London mortgage debt increases by 7.8% during the same period. Mortgage debt in the so-called ‘commuter areas’ of London rose by 6.9%.
This isn’t necessarily bad news for homeowners and the property market in general. Those with a generous budget have greater options and an increase in buying property will stimulate the London housing market, which, in turn, will expand to all regions across the UK. It’s also worth noting that the level of debt relative to the total value of housing is low – at less than 15%.
The house price gains in the south of England in the last decade have given homeowners ample opportunity to borrow against the value of their home. According to official figures published by the FCA and the Prudential Regulation Authority, the outstanding value of all residential loans in mid-2018 was £1.4tn. When you compare this with the £5.3tn of UK housing equity, calculated by estate agent, Savills, it’s clear why homeowners might seek an opportunity to free equity in the home.
It should be noted at this stage that despite these statistics, or perhaps more accurately what they show demonstrates that there are some fantastic opportunities for serious buyers to capitalise on. These deals aren’t always immediately obvious to a typical buyer, so using the services of specialist personal property finders who have expert insights and connections throughout the London market can pay huge dividends.
Transactions and Value
The research by Savills also demonstrated that homeowners living in London and the south of England have benefited disproportionally from soaring house prices in the last decade, compared to other regions across the country.
These regions accounted for 87% of total housing value gains since 2007, something that property consultants in London have been acutely aware of. Less than 12% of homes in the UK are situated in London, but the region accounts for 25% of the total housing stock. This is a rise of 6% compared to the same statistic in 2007.
Under the new rules, buying a £1 million home incurs stamp duty of £43,750, rising to £73,750 if the property is bought as an additional dwelling. However, one result of this is that buyers may elect to take out a bigger mortgage to cover the cost of higher stamp duty. Cash buyers, especially those with very generous budgets, may well be similarly unconcerned with a rise in stamp duty as they do not need to sell a property before making a purchase.
Leading property professionals note that the rise of stamp duty has seen some homeowners seek out the guidance of property professionals before putting their house on the market. However, it should be noted that those who have accumulated significant wealth are generally unconcerned with the slight rise in stamp duty costs as their net wealth allows them to comfortably absorb any percentage increase.
Further Advances on Existing Mortgage Arrangements
Santander UK is yet another high street lender who has observed a notable rise in the number of people accessing equity in their homes as property market growth stalls. This has given rise to so-called ‘further advances’ on existing mortgage arrangements.
Santander has gone on record to state that as many as 60% of clients seeking to refinance their existing mortgage ask to raise more capital at the same time. This is a rise of 20% compared to more recent trends. It’s clear that in a more fluid market there is reduced emphasis on raising capital through reducing home equity.
The need for increased liquidity in homes across the London and the UK is similarly attributed to several factors, according to Santander. School fees have risen by 49%, on average, in the past decade, with private schools now charging an average of £14,000 a year in 2018. The cost of university fees is also directly tied to releasing home equity, according to Santander.
Additionally, older borrowers who were traditionally frozen out of the lending market in the wake of the financial crisis have also been encouraged to release equity in the home through a series of loans designed for later life borrowing.
Known as Rio Mortgages or retirements interest only mortgages, these loans allow over-55’s to borrow on a lifetime term. Since borrowers are required to make regular interest payments, the interest doesn’t accrue into the loan, leaving borrowers with more equity when their loan expires. This is clear evidence that lenders are looking to be more amenable to those wishing to release equity in advanced years.
In the years leading up to the 2008 financial crisis, lax lending controls saw people accessing the equity in their homes at high interest rates to improve the quality of their lives or to pay off credit card debt. The tighter rules around mortgage affordability have subdued lending risks.
For instance, lenders are required to ensure that most of their lending does not exceed four and a half times the borrower’s income. This practice alone serves as an astute way for lenders to safeguard their business practices.
If all homeowners were re-mortgaging their homes at a loan-to-value ratio of 90 or 95%, this could be cause for concern. However, this is not the case. There is, in fact, trillions of pounds in equity held in property at present. The average loan-to-value ratio is 13% in London and 14% across the reset of the UK.
Homeowners who have seen the price of their home soar and the relative cost their mortgage repayments stagnate or shrink are in prime position to release equity to help younger generations and aspiring homeowners – something that is being observed across London – and throughout the UK.
However, it’s important to realise the timescale in our ability to release significant equity in the home could be limited. The scale of lending by releasing equity by the so-called Bank of Mum and Dad, for example, may well be a once-in-a-generation event. The time to act is now.
If you’d like to learn more about how the current economic and political climate is shaping the property market, home equity release, or would like to capitalise on the opportunities the current market affords the serious buyer by using the services of a personal property finder in London, like Jane Wood Property Finders, call us today on: (0) 20 7602 8779.