Ryan Barnett explains why Shared Parental Leave (SPL) should be extended to the self-employed.
- 15 Jul 2019
To understand the relationship between Brexit and the property market, we must first remember that London voted to remain in the EU. The areas which voted leave have gained a certain confidence in the lead up to the expected exit date. This confidence seems to have permeated the property market in many of those areas. Although transaction levels in those areas haven’t returned to pre-credit crunch levels, they have often proven to be more resilient than London. Although only 10 per cent of the population lives in London, the value of the property market there cannot be underestimated. Before the referendum in June 2016, house prices in London were rising faster than wages and, as a result, less and less people could afford to buy a property in the capital.
As confidence in the property market fell following the referendum in London, prices and transaction levels began to fall. These reductions were noticeable but not in free-fall. Those who could afford to buy a property didn’t because of a lack of confidence. There are also other factors that have and are still affecting the London property market. The first is that buying to let is not as viable as it used to be.
The second is that those who already own a house don’t want to sell as they believe they will not be getting the maximum price for their home.
With fewer people selling property in London, fewer are moving out of the city and into the home counties or beyond. This has reduced demand for property in some of those areas and as a result helped stagnate the market. However, trading up in a period of falling prices can sometimes be a good idea. For example, if your £300k property falls by 10 per cent then it is worth £270k – a £30k reduction. If the house you’re trying to buy was £500k and has also fallen by 10 per cent, then its price has dropped by £50k, so overall you are up by £20k.
If we consider that housing transaction levels in the whole of the UK have been subdued for the last few years, then it’s likely there are lots of people waiting for the market to pick up before they sell or buy. When the press can report such an upturn, we can expect prices to start increasing, particularly as demand may well outstrip supply. But what could the trigger be? There are many families living in properties they feel are too small and are waiting to trade up. Eventually they’ll be forced to sell and buy where they can. First-time buyers have been assisted by the government’s Help to Buy Scheme but that has its drawbacks and they’ll likely look to buy before prices start rising again. These types of purchaser can create what becomes a self-fulfilling prophecy of increasing prices – especially in London.
The other trigger could be Brexit. Not only has Brexit knocked confidence in the housing market but also in many businesses. The UK has low unemployment, modest wage increases and GDP growth that has recently been marginally higher than France, Italy and Germany. Once a Brexit deal has been signed with an agreement around trade, it is likely that confidence levels will pick up.
The Bank of England has been trying to keep an even keel. Mortgage rates are at the lowest levels ever seen. Interest on two-year fixed rates starts at 1.35 per cent and interest on five-year fixed rates starts at 1.78 per cent.
Borrowing at such rates is very affordable and it is good news for people looking to take out a mortgage. However, for lenders it is not such good news. Profit margins remain low and in order to tackle this, many have changed their criteria to attract more applications by volume.
Many lenders have been looking to lend to contractors and some are happy to accept those who have recently started up. Rather than looking at two years’ worth of accounts submitted to HMRC, lenders are using a ‘day rate multiplier’ to work out the maximum amount that could be loaned - which usually yields a significantly higher maximum borrowing amount.
But it’s not the same for all self-employed people. Those with complex income arrangements or multiple end-clients remain relatively underserved by mortgage providers. That’s why John Charcol have partnered with IPSE. As an independent mortgage broker, it’s our job to help self-employed professionals with complex situations seize these new opportunities. We’re here to bridge the gap.
The Original Independent Mortgage Broker
With offices in the City of London, Birmingham and Southampton and a network of advisers across the UK, John Charcol help clients arrange mortgages with a total value of £2 billion each year. For 40 years, each and every one of our advisers have kept themselves up to date with the mortgage market to ensure their advice helps our clients manage the present and plan for the future. The goal posts in the mortgage market are forever moving which can make it a complex and confusing world. We aim to help our clients cut through the noise and help them through the process of applying for a mortgage.
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