Property News – July 2022 – Flambard Williams

How will Boris Johnson’s resignation affect the property market?

The latest news within the Government is that Boris Johnson is no longer Prime Minister – But what does this mean for the UK property market?

Now, whilst we do not yet know how this will affect the UK in the long term, what we do know is the markets like stability and we have already seen the FTSE climb; the pound increased due the fact that we now know that we are going to get a new leader.

Let’s see what’s to come…

The £ is at is weakest

Now, whilst the pound has started to increase from the above news, ultimately, it’s still at one of its weakest ever.

In real terms, the cost of property for overseas buyers is significantly cheaper.

If we go back to the start of 2022 – a £200,000 property would have cost $274,000 USD and 1,000,000 AED compared to now which would cost $239,000 USD and 880,000 AED. This would be a huge saving of $35,000 and 120,000 AED retrospectively.

This means that when the pound increases, which we have already started to see since Boris Johnson’s resignation, overseas buyers could make a 10-15% gain just on the currency, if the currency swings back in their favour.

Will Interest rates hit 5%?

The big question at the moment is: ‘Will interest rates continue to rise? If so, what will they hit?’

The Bank of England has stress tested interest rates to 3.75% to ensure that if they were to reach this level, the affordability is there for homeowners. Due to this, the likelihood of them rising much above this level is unlikely.

The days have gone where we are going to see interest rates rise dramatically higher than that as the BoE knows that if they were to do this, there would be a mass exodus of homes being repossessed as people would not be able to keep up with the mortgage repayments. The high street banks certainly do not want to become the biggest home owners, like we saw back in the 2007-2008 financial crash.

Experts are predicting that by the end of 2023 we will see interest rates hit 3% – History tells us this is still far lower than what we have seen previously that has caused issues; like back in 2008, when they hit 5% and the late 1980’s when they were at 15%.

Our View

We feel that whilst interest rates are continuing to rise, this is mainly due to the BoE wanting to be seen to be doing something to combat inflation.

However, one of the big reasons as to why inflation is running high is due to energy prices and the increased cost of living, mainly due to the Ukraine Crisis. This means that if this were to come to a halt, we would see inflation drop dramatically as the cost of oil, materials, and goods would drop dramatically as the supply increases.

As a nation, we are used to seeing interest rates at historic lows. Therefore, people have not accounted for them to be much higher than what they are today. This is important! If rates were to go up to 6,7,8% etc. people’s affordability would simply not be there, which is why we are never going to witness interest rates like we have seen over the years in history. The BoE would prefer to see inflation run hot.

The Mortgage Market

The once stable mortgage market is drifting slightly. What we mean by that is that we are seeing higher rates and down valuations due to lenders wanting to try and de-risk all properties.

Also, lenders can simply be more picky. Everyone at the moment is trying to lock in the rates before interest rates increase, so therefore, due to the sheer number of applications, lenders can be more selective on what they lend on.

We have seen this first hand, especially within city centres where there is a high volume of investment.

Also, many people are willing to pay the penalties to get out of their current mortgages to lock in a lower price for 5 years; this can save thousands in the long run. Again, this is putting more pressure on lenders.

Our View

If you are purchasing a property that is ready now, it could be advantageous to lock in the rate for a 5 year term. Whilst you may pay a slightly higher interest rate now, this is likely to save you thousands of pounds in the long run.

The other thing we would suggest is to base your deposit on 30% as opposed to the traditional 25% for a Buy-To-Let purchase, as we are seeing down valuations typically of around 5%.

This is not to say that the property is in fact worth less than what you have paid for it, it just gives lenders more equity in the property. If you base your purchase on a 30% deposit, it will give you a buffer – should it be slightly down valued.

However, we also feel that if you are purchasing Off-Plan, this could be beneficial. Developers are willing to offer discounts to compensate for any increase in interest rates but more importantly, we feel that the mortgage market will have settled down in the next 12-18 months and therefore, lending will become more competitive and easier to obtain.

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