What Brexit could mean for your mortgage
Five months on from the vote on our EU membership status, and the following Brexit result, the UK is still in a state of uncertainty. In addition, the 3rd November’s High Court ruling that the Government cannot invoke Article 50 without the explicit consent of Parliament once again puts a roadblock on the process that has been created. This has left the UK, the EU and the world waiting with baited breath as to the fate of the country.
Rewind to the aftermath of the result, where we saw the Bank of England cut the base rate from 0.50% to 0.25%; something that hasn’t been changed since 2009. Along with a decline in mortgage approvals and an eye-watering devaluation of the pound to a 31-year low, it seemed the ‘doom and gloom’ that Remainers predicted was very much certain. However, fast forward for a few months and it seems that on the surface, although the initial shock of the referendum result led to a short-term negative effect on the markets, they have subsequently begun to stabilise.
Incredibly, the UK even showed an increase in economic growth of 0.5% for the third quarter of the year (June – September) with the statistics being mainly bolstered by the public sector. This was something that many hadn’t expected to see, with experts predicting only a 0.2% growth. Halifax also reported that UK house prices jumped by an unexpected 1.4% in October, compared to September's figures which showed a slowing; therefore surpassing the 0.1% monthly increase forecast by economists and erasing a post-referendum jolt.
House prices are now up 5.2% from this time in 2015, according to the gauge, putting the average UK property value at £217,411. On a quarterly measure, prices edged up just 0.1% in the three months to October.
Jeremy Duncombe, director of Legal & General Mortgage Club, commented: “Whilst month-on-month house prices continue to be subdued, it’s important that we don’t let these latest figures distract us from the bigger picture. Annually, prices are outstripping wage inflation, making it ever harder to get onto or move up the housing ladder.
“A supply-side crisis still dominates the housing market, with existing property stock unable to meet current levels of demand, making the idea of owning a home an ever-distant prospect for first-time buyers.”*
Is market growth expected to continue in the next 12 months?
A survey** conducted by Contractor Financials saw experts predicting a further growth in the market, with 57% of the sample expecting a 1-5% growth over the next 12 months, despite the Brexit ‘fears’. The only factors likely to impact this growth would be external factors, from job uncertainty to general consumer confidence.
Although the devaluation of the pound has devastated the currency, it has given overseas investors a great opportunity to focus on the UK property market. The fall in value against the dollar means investments are much more attractive as they will be getting more for their money. According to estate agents Hamptons International***, in the third quarter of 2016, Chinese purchases of higher end London properties increased from 1.8% to 2.6% compared to the second quarter, ending the decline of purchases seen in the market.
However, many have pointed out that due to the uncertainty of the EU legislations, visa requirements, and immigration policies that need to be decided, many residential buyers from EU countries have been put off from buying. Above all, the economic factors and social elements have also affected many people’s choice to come to the UK. As well as affecting the housing market, jobs that rely on EU workers (such as doctors and nurses) will mean these sectors could suffer even further shortages, leaving gaps in the skilled job markets.
For now, however, no legal changes have been made and only after Article 50 has been invoked and deals with the EU have been fully ironed out will everybody know the consequences. In that time, the demand for skilled workers will remain, giving European contractors hope.
So, is now the best time to invest in UK property?
For some, it could be. Off the back of Brexit has come the benefit of impressive mortgage rate cuts, with many remortgagers and first-time buyers reaping the rewards of such low rates.
In the same survey, Contractor Financials found that 60% of lenders questioned viewed now as the best time to take out a fixed rate mortgage on a long-term concessionary period, with many favouring 5 years. Although fixing your mortgage for 1 year gives you flexibility, a 5-year term offers longer-term stability, meaning that rate increases won't affect your monthly repayments. Most view today's rates as the best it will ever get, with many high-street lenders using ‘collars’ to ensure that rates do not drop below certain levels, even if the base rate drops.
Brexit’s effect on the housing market has been minimal, and the summer months within which the referendum occurred coincided with the typical drop in mortgage applications; usually attributed each year to holidays and to buyers saving purchases until the Autumn months.
Talking to Contractor Financials, Mike Boles, executive director at SPF Private Clients, commented: “As far as first-time buyers are concerned, according to the Council of Mortgage Lenders, numbers fell in July, although the trade body can’t say for sure whether this was down to the fallout from the referendum or a slowing market anyway. It is worth remembering that July is a quieter time of year for the housing market as people tend to go on holiday and park buying decisions until the autumn.”
“Contractors reluctant to apply for a first-time buyer mortgage since the referendum should try not to lose sight of the fact that they are buying a home, rather than a short-term investment. If you want to be king or queen of your own castle, then the opportunity, in terms of rates and affordability, has never been better”.
A study by Which? has also revealed that there is now an even greater choice of rates in the market, with homeowners and new buyers able to pick from 5,336 mortgages as of the end of September, compared to just 4,736 in June.****
In addition, the cost of borrowing has fallen since the vote on 23rd June, with the average mortgage now repaid at a rate of 2.85%– down from 2.99% three months ago.*****
Luke Somerset, business development director at Contractor Financials mirrored this sentiment, adding: “For those unsure about applying for a mortgage, they should first and foremost consider their own personal and financial circumstance before the market, because ultimately, buying a property is a long-term investment, so short term fluctuations within the market should not affect it too much.”
He continues: “Once you have made sure a property purchase will suit your situation, then thoroughly researching the whole of the market is key. Using a specialist broker as a contractor can ensure your personal circumstances, such as employment or credit status are accounted for.”
Alongside Brexit, the surprise US election win from Donald Trump has also added unrest to markets, with long-term mortgage rates seeing a rapid increase, due to the cost of borrowing for the lenders themselves. Since the 9th November result, swap rates have spiked, heading towards 1% for five-year swaps. However, it is not all bad news yet, as there are still many great deals on the market and a specialist broker can help track down the best rate tailored to you.
Luke Somerset added: “No one knows what the future holds, with Brexit, Trump – and even with the unrest in other parts of Europe. Locking into a longer, fixed rate deal could at least give homeowners the certainty of payments until the country has seen out of the other side of the EU exit.”
Contractor Financials is the multi-award winning home to financial advice for contractors and freelancers across the UK. We have helped thousands of contractors secure the best mortgage deals based solely on their annualised daily contract rate alone, ensuring they are able to secure finance for their dream home or further investment properties. With no company accounts required and the ability to borrow up to 5.49 times their annualised daily contract rate, Contractor Financials are on hand to guide contractors through taking the next steps in their home ownership stages.
If you would like to talk to one of our expert mortgage consultants, please call 0333 370 8888 or email firstname.lastname@example.org.
You can download the free guide to contractor mortgages by clicking here.
** The survey was conducted October 2016 - there were 23 respondents.