Predictions are a tricky business, but at this time of year, they’re pretty much obligatory. So with that in mind, let’s take a look at what could be in store for the housing market over the year ahead.
London switches to rentals?
At this point in time, Article 50 has yet to be triggered. When (if) it is triggered, then the UK should have up to two years to negotiate an exit deal, although in principle this period could be extended if all parties are in agreement. Only once this is agreed can the UK begin the actual practicalities of exiting the EU and discovering what life is like outside it. In other words, it’s probably safe to say that there is going to be a lot of uncertainty in the UK over the next few years and in spite of the phrase “safe as houses”, uncertainty and the commitment of a mortgage could be an uncomfortable combination. While this applies throughout the UK, the high prices in London (and its commuter belt) combined with the possible impact to the financial-services sector could feasibly motivate people to postpone plans to buy or even to move from a property they own into rental property to become mortgage-free and to give themselves maximum flexibility in a post-Brexit situation.
Buy-to-let becomes consolidated?
After the Mortgage Market Review of 2014, the Prudential Regulation Authority has now brought in a stress-test for landlords which mandates that lenders must ensure that Buy To Let (BTL) landlords must be able to afford their mortgages if interest rates reach 5.5% unless they have a fixed-rate which lasts for at least 5 years. Lenders must have this on place by 1st January 2017. This comes on top of recent changes to stamp duty and mortgage tax relief. It’s still early days, but one potential result of these changes is that small-scale BTL landlords exit the BTL market, possibly to invest in property through some other vehicle, such as commercial property or investing in property developers. This could then create a buying opportunity for larger investors, particularly those operating through limited companies.
Investors with cash go bargain hunting?
The Bank of England (BoE) is tasked with keeping inflation at precisely 2%. If inflation drops below target then, in theory at least, the BoE could drop interest rates even further (it is possible to have negative interest rates) or they could use quantitative easing to try to encourage growth. If, however, inflation rises, then the BoE only has the tool of interest rates to try to bring it back under control. This means that either the government would have to raise the inflation target to allow interest rates to be kept low or the BoE would be forced to raise interest rates to put a brake on inflation, even though this could lead to disruption in the housing market. Higher interest rates make mortgages more expensive. This means that even if home prices remain static, property overall becomes less affordable to buyers who need a mortgage. It also means that home owners with an outstanding mortgage need to allocate more of their total income to servicing their mortgage, leaving them with less money for other purchases. People who are already stretched may therefore look to sell their current home and look for somewhere cheaper, such as a smaller property or a property in a more affordable location. This could create a buying opportunity for investors with cash to spare. International investors could be in an even stronger position if the pound is weak in the currency markets, since this would make property even cheaper relative to their home currency.
Your home may be repossessed if you do not keep up repayments on your mortgage