It was all going well until...
According to Roger Martin-Fagg, behavioural economist and author, at the end of the summer all signs were pointing to the economy restabilising to normal trends after the events of the last few years.
Then mini budget was announced on 23 September, and chaos ensued. The Bank of England stepped in to pump the breaks, but damage was already done. The damage we're referring to is the creation of uncertainty.
With uncertainty comes prudence, and so over 40% of mortgage products were taken off the market to avoid a crisis. Lenders like NatWest and Barclays have since brought some products back, but mortgage rates remain higher in response to volatility.
According to Moneyfacts, the average two-year fixed rate mortgage - the most popular mortgage product today - was over 6% by Friday last week. This is compared to 4.74% on 23 September.
What does it mean for buyers?
For buyers in the market for a mortgage, this rate increase has significant implications for the kind of property they can afford. For a proportion of would-be buyers, this rate increase means they either can't afford a mortgage now, or will choose to wait until things have settled down to buy.
What about landlords?
This brings us to landlords, or owners of buy-to-let property as we say at Paramount. We've heard some concerns over the last week and so we want to address those here.
For owners who don't have a mortgage, this episode of uncertainty essentially doesn't affect them, unless they absolutely need to sell in the near future. The lettings market is likely to get even busier as those would-be buyers rent their next home instead.
Have you considered...
For owners who do have a mortgage, it's critical to consider the below points before taking any steps with their investment:
- First and foremost - property remains the safest place to keep your money invested. There will always be ups and downs in the market, but over time, your asset in London is highly likely to appreciate. Think - what were your reasons for purchasing your property in the first place? Do they still hold true?
- The past few years have seen historically low rates, and the rates that we’re seeing today in response to uncertainty were the normal rates of about 10 years ago. If you've been able to take advantage of recent rates, it's a plus!
- If you're concerned about higher mortgage payments resulting in a smaller margin in your monthly rental income, consider that aside from that income, you are still holding an appreciating asset where monthly payments are covered.
- As people face a higher threshold to get onto the property ladder, it's a positive thing to already be an owner. Selling now will mean you're likely to get less for your property (as mortgages are more expensive), and there's also no guarantee that when you're ready again to purchase another property you'll be in a net better position. We don't know when we'll see rates of the last couple years again.
If you're going to struggle to pay your new mortgage rate - THERE ARE OPTIONS!
If your answer is "yes" to the question "If you could keep your property, would you?", then consider this:
- One way to reduce your monthly payments, even temporarily, is to extend your payment term.
- Make sure your property is correctly valued by the bank. Banks can sometimes take the easy route with a desktop valuation, and might even have you in the wrong Loan To Value band, affecting your payments.
- If you're on full repayment, you may have the option to switch to pay interest only on your mortgage. This could be a temporary option to get you through this period, or some of our owners choose to do this on a more long term basis. We're talking about an investment rather than primary residence, and that capital could be invested elsewhere to your benefit.
- Another temporary measure may be to freeze your pension payments and divert them to cover your mortgage to help you hold on to your asset. For some people, the value of your property may even grow more than your pension, so this could be to your benefit.
It's tax deductible!
If your property is managed and you are concerned about the cost, think of why you opted for management in the first place. And don't forget: management fees are tax deductible!
Who is it for?
And last but certainly not least - who is your investment property for? Will it be the home-sweet-home of your retirement? Or like one of our owners described to us today - will it be where your son or daughter can enjoy building their career in London, and perhaps nurture their new family? It's important not to lose sight of what your property might be for you or your loved ones in the future!
If you're in a position where you need the capital, we completely understand and are here to help you through that next step.
But if recent events have you spooked, we're here to help you understand all of your options before making the best choice for you and your future plans. The worst thing you can do is react spontaneously in a volatile market!