January 16, 2017
Houses

Goodbye 2016 and hello 2017, and what a start to the year it has been. Tenant and buyer registration numbers have returned and whilst stock levels remain low, a number of new instructions have hit the market and valuations have been plentiful. Buyers are making offers and tenants are moving again, so for now we are being kept very busy indeed. Has the spring market come early or will it be an extended one this year?

Rightmove point to a 0.4% (+£1,086) rise in the price of property coming to market so far in January, a fraction down on the 0.5% rise recorded in the same month last year.

In greater London they are reporting a monthly asking price increase of 1.4%, and Robert Nichols, Managing Director at Portico in London had this to say:

“With volume typically leading price, we do expect property prices to soften this year – especially in prime central London and the most expensive boroughs. We have already seen a year on year price drop in Westminster, and it is possible that this price correction could ripple out to greater London. We do however still expect certain hotspots in the outer London Zones – like East Croydon, Forest

Gate and Leyton – to experience price growth – though perhaps not at the level we’ve seen in previous years. If you’re planning on purchasing an investment property this year, make sure to buy in an area undergoing infrastructure investment or gentrification. That way, even in a weak market you’ll still stand to profit from a boost in both rental yield and capital growth.”

This falls in line with our current thinking, although we will draw your attention to changes in the buy to let mortgage market, some of which came into play on 1st January 2017, with more set to follow in September.

Please note, we are not mortgage advisors so you must seek expert advice when looking at your own specific circumstances; however, in essence, buy to let mortgage lenders will assume a theoretical interest rate, and a rent to mortgage payment ratio, when stress testing a loan, with the market norm likely to be 5.5% and 145% respectively. This means that when applying the stress rate calculations to your proposed product (and working on the figures exampled above) the lender will look at the amount you need to borrow, factor in a theoretical interest rate e.g. 5.5%, before calculating a rental income to monthly mortgage payment ratio e.g. 145%

Example

£230,000 loan, over a 25 year term

5.5% interest rate = £1,054.00 (monthly (interest only) mortgage payment)

X 145% = £1,528.30 (being the achievable rental figure required for lending purposes)

There are loads of buy to let mortgage calculators on the net, some working to ratios of 125%, others 135% as well as the ones at 145%. To understand this properly it’s best to speak with an expert, as there are many factors to consider, but you get the general idea. Click here if you would like to speak with a mortgage broker on this subject (it’s free).

Some landlords are already experiencing some problems when coming to re-mortgage. It’s certainly worth getting “clued up” sooner rather than later.

One of the reasons we are pointing this out, and why it will affect the market in general, is because with less buy to let investors able to compete for property, it should spell out good news for first time buyers. Less competition and perhaps a slowing market, particularly at the bottom end, which will then work its way through to the rest of the market.

It’s certainly food for thought.


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