We’ve already looked back over 2017 to assess the property and mortgage market in the year gone by. However, it’s now time to look forward, and Enness is already gearing up for a busy twelve months ahead. But what are we expecting to happen in the property and mortgage market in 2018?
We expect the luxury property market to be fairly subdued next year, as tax changes and political uncertainty continue to affect the market. We should begin to see recovery by the end of 2019, but certainly either stagnation or a slight dip is likely in the year ahead.
Historically, investors in London property have enjoyed extensive capital appreciation. This is unlikely to be true in the next few years; the trick is to find other ways to make your assets work for you. One way of doing this is refinancing to release equity to invest in other, higher-yielding assets. At the end of 2017, many of our overseas clients looked to begin this process.
We didn’t see changes to stamp duty for larger properties in the budget, which was disappointing for many buyers in London—stamp duty in the capital can make buying a larger home feel prohibitively expensive. There is a way around this, however; savvy buyers have already begun to buy older, cheaper stock, with the view of securing refurbishment finance and creating their dream home, instead of sinking this money into stamp duty. Both this and the point above will be helped along by the fact the mortgage market, unlike the property market, is looking positive—lenders have plenty of liquidity and are eager to lend.
On the international luxury property market stage, the numbers are looking very positive, particularly in France and Spain. As we reported at the end of last year, Paris is likely to do well throughout 2018. The French Riviera will remain as desirable as ever; indeed, investors will probably head back to France after changes to wealth tax mean tax conditions are more favourable for those in the high net worth bracket. Enness International arranged €297million in French real estate finance in 2017, which highlights the phenomenal appetite of investors.
Brexit will continue to affect the property market. Negotiations were never going to be a simple and straightforward process, and there’s no point in denying Brexit has caused people to halt in their tracks when considering high-value property market purchases. Nobody wants to be caught out by overpaying now and suffering from a decrease in value.
The government’s weakened mandate hasn’t helped with buyer confidence: Theresa May achieved the opposite of a ‘strong and stable’ government with her snap election earlier last year. But as it stands, she’s still holding on—and Labour’s confusing stance on Brexit may cost them support over the coming year. Corbyn has historically been critical of the European Union, a stance which is at odds with the sentiments of many of his supporters.
There are too many factors at play to predict the political landscape, and as we’ve been shown over the last few years, anything can happen.
Ultimately, we do expect the market to kick back to life in one way or another as trade and final Brexit details are defined—especially the transition period. The market is sound, mortgage availability is high, and there is still plenty of interest from overseas. At the moment, we’re in the middle of a confidence slump, which will correct itself as such slumps always do.
On the buy to let front, landlords were hit hard over the last year. Many landlords looked to sell off their properties as they became less profitable. Unfortunately, many of these changes were short-sighted. Making life more difficult for smaller landlords won’t mean first-time buyers can magically afford to get on the property ladder. This is because a reduction of rental stock could mean a price increase. Tenants need affordable rents, but if the buy to let market gets smaller whilst demand from tenants remains the same, there could be trouble.
Long-term fixed rate buy to let mortgages could help landlords to feel more secure. I expect to see an increasing number of clients purchasing buy to let property in Special Purpose Vehicles (SPVs), which is one way of mitigating some of the changes. From our perspective, lenders have had to adapt a great deal over the last year, with some lenders now offering products such as limited company buy-to-let lending.
If we take a look at the commercial property and mortgage market in 2017, we can see the clear resilience of the UK market. Savvy investors will always find ways to take advantage of situations that others shy away from. For example, in the last year, commercial property investment from foreign investors has reached record highs, as people take advantage of the Pound being weak.
There’s no denying that the UK market is resilient. As a location, the UK appeals to visitors from around the world on every front from lifestyle to business; those with Brexit fears should be comforted about the huge investment from Asia in 2017. Britain is – and will remain – a global business centre.
As such, there’s plenty of lenders in this area. In terms of commercial finance itself—in addition to bridging and development finance—we’ve seen an increase of available funding sources, offering increasingly varied finance facilities from unsecured business loans to cheaper bridging rates than we’ve ever seen before. 2018 should continue this trend, although there is a risk of market saturation. Enness Commercial rounded off 2017 by securing a £17million facility for two foreign investors, a deal which speaks volumes about this sector. The mortgage market for commercial property is ready for another big year.
The Chancellor’s last Budget was dubbed ‘the housing budget’—we’ll look to see an influx of funding for SME developers in 2018, as the Conservatives strive to make good on their pledge to boost housebuilding.
The Bank of England (BOE) forecasted there could be two more interest rate rises in the next three years; on the current trajectory, we should expect to see the base rate to sit at about 1% by 2020. As such, we would strongly encourage borrowers to take out a fixed-rate mortgage. As it stands, the only likely way for mortgage rates to head is up, so locking in a low fixed-rate now is advisable.
However, your finance journey is unique to you and your circumstances. Whatever your mortgage market requirements are—from residential refinance to a large commercial facility—Enness has a specialist team in place to help, so get in touch for a consultation of your situation.