Date Published 07 February 2019
Good news for first time buyers and those with smaller deposits.
I`ve previously outlined the positives for property, once Brexit is resolved, and there`s been more good news for the market. Interest rates on smaller deposit mortgages are reducing, making purchases cheaper.
The Bank of England base rate has meandered between 0.25 and 0.75% for 10 years but interest rates charged by lenders have reduced dramatically. Post 2008 crash, banks have repaired their balance sheets and met the reserve requirements set by the Prudential Regulation Authority so this has allowed them to offer increasingly competitive rates. My clients are always pleasantly surprised at the savings when I remortgage them.
Where this supports property prices is the cheaper something is, the more demand there will be. A big stumbling block has been the greater cost to borrowers with lower deposits as bank deem the loan riskier. However, the premium on 5 and 10% deposits and those with a 40% deposit has shrunk over the last year.
Brexit has tempered spirits and reduced demand, but once the uncertainty is over we should have a positive effect making it a good time to upsize now. Around the time of the last general election and the Scottish referendum before, activity collapsed due to the uncertainty and Brexit is a bigger, more uncertain beast. Some outcomes are better than others, but the country won`t collapse and once we have a clear direction, we will have; low cost of borrowing, greater availability of credit, lack of property supply, average wage inflation exceeding inflation and record levels of employment which makes me feel it`s a great time to upsize in this period of uncertainty.
As with all caveats regarding generic thoughts on finances, it`s my personal opinion based on my experience and knowledge, not a crystal ball!
Paul Davies, BSc Hons, Cert SMP and Dip PFS
Director of About Mortgages and @Home Estates.