The Fox Davidson Housing & Mortgage Report. Q4 2015.
New tax rules announced in the Autumn statement affecting buy to let and second home stamp duty increases of 3% has seen a surge of mortgage activity with clients wishing to secure finance and complete on property before the 1st April 2016 deadline. December was one of the busiest months of the year for mortgage enquiries and applications at Fox Davidson.
The Council of mortgage lenders reports that gross mortgage lending reached £19.9 billion in December. This brings the estimated total for the year to £220.3 billion, an 8% increase on 2014’s £203.3 billion and the highest annual gross lending figure since 2008.
Buy to let activity remains strong with lenders continuing to innovate. The mainstream lenders are now competing with challenger banks that were previously only attractive for lending on commercial property such as commercial units, HMO’s and multi units under one freehold.
Rental calculations which are used to determine how much to lend based on rental income have increased due to the proposed tax changes. The industry norm of 125% of rent at a notional rate of 5% is now a thing of the past. Lower loan to values below 65% or longer fixed rate deals offer the most competitive rental calculations.
The government continues to put emphasis on the generation of home owners through schemes such as Help to Buy. Proposed Government tax changes announced to put off would be property investors.
The new tax changes will make owning a second home less financially attractive and will undoubtedly put off some would be property investors. But, with the National Association of Estate Agents and the Association of Residential Letting Agents predicting that the price of the average UK home will rise by 50% in the next 10 years this is unlikely to put off those that (rightly) see buy to let as a long term investment.
House building is still nowhere near the widely reported 250,000 new homes needed to be built each year to meet a growing UK population. In 2014 144,980 new homes were built, some 40% below target. This coupled with low borrowing costs and increasing wages will ensure that house prices continue to grow.
Nationwide reports that house prices increased by 2.2% in Q4 of 2015 and were up 6.9% year on year.
- Average House price in UK £242,975.
- Most expensive Region London
- Least Expensive Region North
Nationwide expects house prices to continue to increase with the average house price to increase 3-6% over the next 12 months.
Hometrack, which tracks 20 Cities in the UK, reports that ‘Cambridge continues to perform like London and has registered the highest annual rate of growth at 14.4% followed by London (13.8%) and Bristol (12.8%).’
It is interesting to note how global issues are affecting property prices in the UK. The report continues ‘The annual rate of house price in Aberdeen has slowed from +13.5% a year ago to -1.4% today and looks set to remain weak over 2016. Newcastle and Sheffield are recording the next lowest growth rates of 3.7%, still higher than average earnings, and in cities where the housing recovery is at a much earlier stage.’
Bank of England base rate remained at 0.5% at the end of Q4 2015, a position it has not moved from since March 2009. Money markets are not predicting a rate rise anytime soon with some economists predicting a rate rise as far out as November 2018.
Residential Mortgage rates remain at record lows with the best possible terms below 60% loan to value. With the Bank of England base rate reaming low for the foreseeable base rate trackers may appeal as much as fixed rates and we may still yet see more records set for the lowest ever rates to be released by lenders.
Competition in the buy to let sector has seen a drop in interest rates and further changes are expected in particular with regards to Ltd company buy to let rates as more lenders meet demand following tax changes to buy to let in personal names.
Commercial mortgage lenders such as Shawbrook Bank continue to be innovative with reduced arrangement fees and rates of interest for both floating and fixed rate money. There are some very good deals to be had below 10% per year for development finance, auction finance and refurbishment finance. High street bank commercial mortgage lenders continue to lead the way with rates as low as 4% having been secured by Fox Davidson on property development finance in quarter 4.
Interest rates for businesses wishing to buy their own premises are as low as 2% over base for the right business.
Q1 2016 – Looking forward
A record month for leads following an exceptionally busy Xmas coupled with lots of buyers rushing to complete before the 3% stamp duty kicks in on the 1st April 2016 will ensure that Q1 2016 is a busy one for estate agents, property lawyers, mortgage lenders and brokers.
With prosed tax changes to rental income from Buy to let, investors will look to refinance portfolios with some transferring property into a Ltd company and many refinancing to ensure portfolios are financed at the lowest possible rates of interest.
- Help to buy London launches offering 40% deposit at 0% interest for 5 years
- New legislation for landlords means they must check a tenant has rights to reside in the UK.
- Global uncertainty will see bank of England base rate remaining at 0.5%……forever!?