Blog Post No. 184
UK Mortgage Trends, Property Ownership Strategies & London Premium Views – 22nd Aug Property Bulletin
UK Mortgage Lenders Anticipate Inflation Drop and Slash Rates
Multiple UK banks and building societies are poised to decrease rates on fixed mortgage deals this week, reflecting a belief in declining inflation.
However, brokers are cautious about expecting substantial price reductions, as the Bank of England is projected to raise interest rates later this year, supported by recent wage growth records.
“Consumers shouldn’t expect a rate reduction every week,” warned Nicholas Mendes, manager at broker John Charcol. “I anticipate a period where price cuts will slow down before more lenders join in.”
Barclays, Nottingham Building Society, and Yorkshire Building Society cut rates by up to 0.61 percentage points on residential fixed-rate mortgages. This marks the fourth consecutive week of mortgage rate reductions since inflation dropped to a 15-month low in June.
Lenders base their rates on the swaps market, reflecting future interest rate expectations. These rates are anticipated to rise next month.
Swaps experienced an increase due to record wage growth from April to June, reinforcing central bank concerns about inflation pressures.Swaps markets currently predict UK interest rates will peak around 6% by year-end, compared to the earlier forecast of 6.5% in July.
Analysts polled by Reuters estimate Wednesday’s data will indicate a sharp decline in consumer price increases, from 7.9% in June to 6.8% in July.
NatWest plans to lower rates further by up to 0.45 percentage points on Wednesday, joined by Yorkshire Building Society’s Accord Mortgages.
Platform, part of the Co-operative Bank, also intends to cut fixed-rate costs by up to 0.29 percentage points starting Thursday.
“We’ve waited for lenders to start lowering their rates, and the improvements are becoming more frequent,” said Aaron Strutt, a director at broker Trinity Financial.
Despite recent mortgage cost reductions, borrowers still face higher rates than a year ago. The average cost of a two-year fixed mortgage stands at 6.79%, per Moneyfacts, slightly down from an early August peak.
“Most homeowners and buyers need rates to be at a more affordable level before they regain their financial confidence,” noted Strutt.
Navigating Property Ownership Without Parental Support
In a climate where a significant portion of young individuals is relinquishing the dream of property ownership, there’s still a pathway to acquiring a first home, even without assistance from the Bank of Mum and Dad.
It’s imperative to recognize that the stamp duty holiday, which allowed certain buyers to save up to £15,000, wasn’t the driving factor, particularly as surging property prices offset these potential savings.
Reflecting the sentiments of the “guppies,” young adults with decent incomes who have “given up on property,” The feeling of discouragement is understandable. A Zoopla survey highlights that 40% of individuals under 40 have relinquished the aspiration of stepping onto the property ladder within the next decade. Notably, even among respondents earning over £60,000 annually, 38% held reservations about attaining homeownership before 2033.
Balancing rent, bills, student loan repayments, workplace pension contributions, and navigating escalating living costs and inflation makes it formidable for younger generations to amass a deposit for the average house’s £286,000 price tag. For single first-time buyers, the hurdle is significant, with a required deposit of £74,000 for a mortgage, based on the property website Rightmove’s calculations.
In London, where the average first-time buyer’s asking price reaches £502,251, the financial pressure escalates further. This scenario eases somewhat for those pursuing property ownership with a partner.
For individuals without familial financial assistance, seeking a strategic game plan is key. Brace yourself for years of disciplined saving.
According to the Barclays Mortgages’ First Time Buyer Index, first-time buyers usually require an average of eight years to accumulate enough funds for a down payment.
It’s important to explore every avenue of government assistance and evaluate their suitability. For instance, a Lifetime ISA could be beneficial if you can commit to saving up to the maximum £4,000 per year for a few years to avail of the £1,000 bonus, all while aiming to buy a home priced under £450,000.
Considering these staggering figures might induce unease, especially for those without parental financial backing. However, a focused approach and thorough examination of options can yield positive outcomes.
Its good to consider shared ownership as a Plan B. This arrangement enables co-ownership of a property with a housing association, combining partial ownership with rent payments. It’s crucial to enter this option with a clear understanding of potential costs.
Another approach is exploring joint mortgages with friends. Exhaustive consideration of every avenue is essential.
Above all, maintain hope. Equipping oneself with knowledge about potential options and positioning oneself for opportune moments can make homeownership more attainable for aspiring “guppies” than they might initially realize.
The plan to bypass second home stamp duty by having the husband purchase a new house in his name alone may not work. Even if only one spouse buys the property, SDLT assumes both spouses are joint purchasers.
If either spouse owns two properties, the 3% charge applies to the entire transaction. The couple’s financial ties due to marriage make them subject to the charge. However, if they sell their current home within 36 months of buying the new one, they can claim a rebate of the 3% charge due to replacing one main residence with another. This replacement qualifies for a lower SDLT rate.
In the London new-build property market, the demand for luxury units is high, particularly among international buyers. Wealthy investors are drawn to the modern amenities, security, and prime locations that new builds offer. However, the market is facing challenges such as an oversupply of mid-market stock and cookie-cutter developments, which can lead to homogeneity in the property landscape.
While luxury branded propositions are thriving, mid-market units often struggle to stand out.
Areas like Belgravia and Mayfair have limited supply of larger units, leading to increasing demand and potential price hikes. Branded developments, such as Twenty Grosvenor Square and OWO Residences, are attracting the wealthiest investors with promises of luxury living. However, for mid-market new builds, oversupply and lack of uniqueness are significant issues. Many developments feel similar and lack character, impacting both buying and selling prospects.
Investors should be cautious of potential pitfalls, including poor build quality, escalating service charges, and limited differentiation. Off-plan purchases or buying sight unseen can be risky. Despite challenges, the new-build sector still offers opportunities for those who exercise due diligence. Expert advice, careful selection, and understanding the market’s complexities are crucial for success. While new builds promise ease and modern living, it’s essential to navigate the intricacies of the market to reap the rewards.
Mortgage borrowers have an opportunity to save money by making overpayments, potentially reducing the mortgage term and interest costs.
Around 800,000 fixed-rate mortgages are set to expire in the UK this year, leading homeowners to explore this option due to anticipated higher mortgage rates. Overpayments can accelerate debt repayment, shorten the mortgage term, and improve loan-to-value ratios for better rates on future deals. However, caution is advised, as maintaining an emergency savings cushion is crucial, and this strategy may not suit everyone. Homeowners with more expensive debts should prioritize those before overpaying on their mortgages. Comparing mortgage rates to high-yield savings account returns is also recommended, especially given recent interest rate increases. Lenders often limit annual overpayments to around 10% for fixed-rate deals.