What Could Possibly Go Wrong? London’s Property Tipping Points (Part 3 of 3)

DCHere it is: the final instalment If you haven’t read parts 1 and 2, you should take a look at those first. If you’re returning to pick up where we left off, I can only advise that you remember the many positives outlined in the first instalment. For now, ‘The Dark Side’ continues…

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WHAT? Domestic politics

HOW? The UK has been a relative stranger to political turbulence in recent years, lending it a safe and reliable glow with which to court international investment. But with the 2015 general election and a possible European referendum, and the recent vote on Scottish Independence (regardless of the outcome), the threat of political uncertainty has been looming on the horizon. The various party political election campaigns, and the associated glut of political rhetoric, could have a significant impact upon investors and their decisions in the run-up to the 2015 vote.

The clampdown on foreign property owners, for example, who hold assets through a company structure, has already had a negative impact on the building of new residential properties for the rental market. While some property owners regard the new rules as a fee for privacy, which they are willing to pay, others in the industry have blamed the regulations for signs of cooling in London’s high-end luxury housing market.

HOW QUICKLY COULD IT CHANGE? Months to years.

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WHAT? Geopolitics

HOW? London has long been seen as a financial safe haven by wealthy investors seeking to move money out of their home markets. Property in the capital is a popular choice as a store of value because its relatively opaque ownership structures make it more difficult to trace assets’ ultimate ownership. Property owners who hold their homes through a company structure need only to register the name of the company with the Land Registry, not the name of the beneficial owner. And, given the various Middle Eastern conflicts and rising tensions between Russia and the west, it is almost impossible to see how these safe-haven effects will not continue for the foreseeable future.

HOW QUICKLY COULD IT CHANGE? Much too difficult to say.

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WHAT? The global savings glut

HOW? International investors from developed countries such as South Korea and Taiwan, where savings rates are high, are currently finding that their home property markets are already saturated with investors looking for somewhere to place their surplus cash. Consequently, they are tending to look for investment opportunities abroad in ever-increasing numbers. In London, such investors can find yields of 5-6%, while in their home markets promise less than half that figure. However, with investors increasingly focused on secondary assets and yields on prime central London property already approaching pre-crisis lows, rising prices and falling yields might reduce the attractions of property in the capital.

HOW QUICKLY COULD IT CHANGE? Months to years.

New Mortgage Rules Could Derail House Price Recovery

mortgagesTough new mortgage rules are expected to cut the number of buyers enough to cause the housing market to stall over the summer, UK property experts have warned.

The new rules, introduced by regulators under the Mortgage Market Review (MMR), mean that borrowers will now face intrusive checks on their income and spending habits. Lenders are also testing whether borrowers are able to cope with increased repayments in the case of rising interest rates. Consequently, many new buyers and even existing borrowers wishing to remortgage are expected to have their applications rejected.

The Government’s controversial Help to Buy scheme has been criticised by some for increasing the demand for properties and pushing up prices, allowing buyers with as little as a 5% deposit to access mortgages. Whatever the cause, the latest figures from the Office for National Statistics report that the average UK house price rose to £253,000 in February, up 9.1% over the previous 12 months, with most regions seeing strong year-on-year growth in property prices. In England, prices are now higher than the pre-financial crisis peak of January 2008, with London seeing the largest growth: the average home in the capital now costs £458,000, up 17.7% over the year to February.

Under the new rules, lenders will be responsible for assessing whether buyers can afford a loan, regardless of their deposit. Consequently, lenders have developed affordability questionnaires that ask what some might consider intrusive questions, including whether a borrower gambles, has ever taken a payday loan, regularly eats out or has pets or any expensive hobbies. Some are going further, asking how much applicants spend on haircuts, cleaning products, eye-care, and parking. In fact, many go as far as to ask whether borrowers are planning any major life changes that could impact on their income such as starting a family or becoming self-employed.

Lenders are also applying more rigorous stress tests to ensure borrowers will be able to afford their loan when interest rates rise, with the particularly cautious assuming rates will reach 6-7% in five years’ time. Such an increase would require borrowers to have a considerable cushion in their disposable income to show they will be able to meet their repayments in the future.

And it’s not just new borrowers who will face the tough new tests. Existing customers who want to remortgage or move their loan to a new property are likely to be caught out and could find they no longer qualify. Although many mortgages were sold with assurances that they could be moved – or ported – to a new property midway through the loan, and in spite of new MMR rules stating that existing borrowers will only need to be put through the new affordability requirements if they want make changes such as increase their borrowing or change the length of their loan, some lenders will be applying the tests to people who simply want to move house.

Problems are likely to arise because many existing borrowers would not qualify for their mortgage if they were reassessed under the tough new affordability tests, even if their income had improved or they were moving to a cheaper property. These borrowers could be the next group of “mortgage prisoners”. Many are likely to be told they cannot afford their lender’s most competitively priced loans, and forced onto the expensive standard variable rate.

These tough new mortgage affordability tests could be in danger of killing off the boom in UK property prices as lenders reject thousands of borrowers who would previously have been accepted. Both executives within the lending industry and economists alike, have warned that the impact of the new rules, devised and enforced by the new City regulator, the Financial Conduct Authority, could be enough to strangle a nationwide recovery in the property market. Figures published yesterday by the British Bankers’ Association showed mortgage approvals have already started to fall back, reaching a four-month low in March

Buying Privately – Why It Makes Sense

With house sellers’ asking prices lifting to record highs for two months in a row, and amid a poor supply of homes for sale in many areas of the South, is buying privately the answer?

New seller asking prices in England and Wales hit a new peak of £262,594 in April, up 7.3 per cent on a year ago, marking the fastest annual rate of increase seen since October 2007. So buoyant is the market that many popular locations are suffering from for sale sign “black spots” due to properties being snapped up within days of doing on the market. In London, asking prices are up by 15.9 per cent on a year ago typically and since 2007, London sellers have typically hiked their prices by more than the cost of an average home in the North West. And it’s not just the capital, prices are higher in every region across England and Wales than they were a year ago. It’s a sellers’ market again, but can buying privately help redress the balance in power?

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Buying privately puts you in control of the buying process and offers many advantages over the more common process of buying through an agent. Primarily, communication is direct and so tends to be quicker and less complicated; you can get immediate answers to your questions and an instant decision on any offers. Negotiations too, can be quicker and more simple, and by dealing directly with the vendor, you will be able to get quick and accurate updates of the sales process. In fact, in many ways, buying privately is much easier than buying through an estate agent, but more than ever, it is advisable to do your homework before attempting to buy a property without one.

Researching the market is key no matter how you decide to buy, but not just the listed prices on agency websites. Check the actual sale prices of houses in the area using sites like Zoopla, taking into consideration the readily available market statistics to calculate the most likely up-to-date figures.

Having already sold your home, or being a first time or cash buyer can put you in a strong negotiating position. Whether or not your offer is accepted may depend upon other factors and your own personal circumstances. Be sure to include this information when you make an offer, particularly if it is in your favour. It is also worth getting all the necessary information ready to go before you make an offer. Simple things that make you look well-organised and reliable, like supplying your contact and financial details promptly can make a difference.

Meanwhile, the Royal Institution of Chartered Surveyors (Rics) predicts that house prices will continue surging by around 6 per cent annually for the next five years, mortgage support schemes such as Help to Buy and improving consumer confidence have prompted more buyers to flood into the market in recent months, and London continues to attract strong interest from overseas investors. It seems like the sellers’ market is here to stay, but buying privately is one way to lessen the cost and stress of purchasing property, making it the right time to buy too.