Over the last two years, more coverage has been given to Brexit and the property market than almost any other topic. We wanted to explore how they are connected and what Brexit means for borrowers.
On 30th August 2019, we held a webinar with one of our partners, IPSE. Our resident mortgage expert Nick Morrey was there on hand, exploring the current housing market amidst Brexit uncertainty and deciding whether now was the right time to buy.
In this blog post, we will cover all the key points you might have missed from the webinar.
To understand the relationship between Brexit and the property market, it’s good to remember that London and most other major cities voted heavily to remain in the EU. So, after the result London was left feeling very uncertain of the future.
Before the Brexit referendum in 2016, house prices in London were rising faster than wages. This meant lot of people were less able to afford property in London.
After the referendum, confidence in the property market fell even more. When people are afraid about the future, they tend to hold back on any major decisions. This lack of confidence meant people didn’t want to sell or buy property. As a result, property prices in London have suffered.
Stamp Duty rates commonly increase at the top end of the market. This means that in the wealthier parts of London, people are hesitant about moving or selling.
If people at the top end of the market do want to sell, it’s made very difficult due to the very high stamp duty rates, in excess of £1.5 - 2 million. This has created a problem, because if you hold back the top of the market and prevent them from moving or selling, this will filter down the property chains below.
With fewer people selling property in London, fewer people are buying. There are, therefore, fewer people selling up and moving out of London into the home counties and beyond. This means a reduced demand for property in these outer areas, which ripples out to the rest of the country. The overall market, therefore, is stagnating.
Although it can be daunting, trading up in a period of falling prices can sometimes be very beneficial. For example, if your £300k property falls by 10 per cent then it’s worth £270k – a £30k reduction. If the house you’re trying to buy was £500k and has also fallen by 10%, then its price has dropped by £50k, so overall you’re up by £20k.
Housing transaction levels across the UK have been subdued for the last few years. As a result, it’s likely there are a lot of people waiting for the market to pick up before they sell or buy.
Once the climate has settled and press can report an upturn, we can expect prices to start increasing, particularly as demand may well outstrip supply.
Brexit could be a large trigger for change in house prices. Over the past few years, Brexit has knocked confidence in the housing and business markets - especially with regards to trading.
The UK has low unemployment, modest wage increases and GDP growth that has been marginally higher than France, Italy and Germany. The UK is well placed commercially, so European countries will want a trade deal to avoid tariffs and taxes on their products.
Once a deal has been signed or an agreement around trade has been made, we can expect that confidence levels will pick up.
If you’re self-employed and looking to apply for a mortgage, planning is essential. Some important steps to take are:
Talk to your broker – If you haven’t got a broker, it’s highly recommended that you speak to one. It’s not as easy for self-employed people to access the mortgage criteria on consumer lending websites, so it’s a good idea to talk to a broker as early as possible about all of your options. This will take a lot of stress out of the process for you.
Talk to your accountant – After talking to a broker, you may want to talk to your accountant. If you have accounts that are being drawn up at the time you’re thinking of making an application, or just before, it might be a good idea to talk to your accountant and let them know what your mortgage goals are.
Talk to your partner (business and personal) – If you have a business partner it’s important they know what’s going on in case there are things that can be changed in the business to enhance your mortgage application.
When it comes to your personal life, it’s always important to plan for the future too. In particular, deciding how long you want to stay in a property. That way, you will be aware of the kind of fixed rates you’re realistically looking for.
Make it easy for an underwriter to tick the boxes and move on – Underwriters will usually have a lot of paperwork to go through. The easier it is for them to get the correct documents from you and tick them off, the better. In this case it pays to have any essential documents ready and waiting, in order to speed up and ease the process.
Don’t leave it to the last minute – If things are left to the last minute, you may be restricted in your choice of lender and potential rates.
At the moment, there have never been so many lenders looking to lend to independent professionals and the self-employed. Nick Morrey says that: “This is a bit of a knock-on effect of the recession, credit crunch and reduced transaction levels.”
The uncertainty around Brexit has worked to the advantage of the self-employed borrower, with more lenders appealing to this market. The market is far more mature than it was before, with more options than we’ve ever seen.
Many lenders are now looking to lend to contractors or recent start-ups. Rather than having to look at two years’ worth of accounts submitted by HMRC, lenders are using a “day-rate multiplier”. This allows the lender to work out the maximum amount that could be loaned, which usually yields a significantly higher borrowing amount.
It’s not always the same for all self-employed people. Those with more complex income arrangements can still be disregarded by mortgage providers. This is why John Charcol have partnered with IPSE. As an independent mortgage broker, it’s our job to help self-employed professionals seize any opportunities regardless of complex circumstances.
If you want to hear more, don’t hesitate to request a callback from us or speak to one of our experts now on: 0330 127 5909
