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Unlocking Opportunities in the UK Housing Market for Homebuyers & Investors in 2023.

Mon, 09 Jan 2023 14:18:46 GMT

Is the UK housing market ripe for opportunity in 2023? Let's take a closer look

The RICS UK Housing Market Forecast for 2023 predicts that the UK housing market will experience a slowdown in growth over the next few years. This could have a significant impact on the market, as demand for housing is projected to decline. Homebuyers and renters may find it more difficult to find affordable housing, and mortgage interest rates are expected to continue to rise. While the forecast provides a detailed overview of the current and future state of the housing market, it is important to remember that it is only a prediction. The actual outcome may vary significantly.

Making the most of the current market conditions

Over the last few years, we've seen record levels of house price growth and more favourable terms for mortgages. This means more people have been able to get onto the property ladder and make their dream of owning a home a reality. It's true that the economic backdrop and rising interest rates may present challenges, but there are still plenty of opportunities in the market. Many buyers are finding ways to stay ahead and make the most of the situation. With a bit of research and smart planning, you can also make the most of the current market conditions.

1. Can we expect a housing market crash in 2023?

Who knows? When a housing market crashes, it means that the housing prices have risen to a level that is too high and then suddenly dropped. Demand drops significantly and mortgages are offered at lower loans to value and lenders become nervous. This can make it harder for people to buy a home and can also cause problems for people who have already bought a home with a high loan to value. It can also affect the economy, making people less likely to spend money.

It's true that housing prices have seen above average increases with the added burden of recent mortgage repayments increasing but for first time buyers, this may be in part countered with lower house prices and more properties being sold at or around the valuation amount and not the 15 -30% over valuation that has been commonplace throughout the country.

Now many agents are confirming that the goal for the seller is the valuation or Home Report price rather than many thousands of pounds above it. Consider this: buying a property in June this year marketed at £250,000 and finally agreed at £275,000. £25,000 over asking price and money people had to find to close the deal on top of their original deposit. Buying in 2023 means you could well be able to use that extra cash to increase your deposit or perhaps use it for some immediate home improvements. A better outcome for the buyer and definitely something for first-time buyers to get excited about!

But that doesn't mean you should jump into a home purchase without doing your due diligence. By taking the time to get your finances in order and ensuring you are ‘mortgage ready’, you'll be able to take advantage of lower home prices and potentially better loan-to-value mortgage deals, ideally being able to put a large deposit down and borrowing slightly less. Plus, if you wait, you may be able to find even better bargains down the line. So don't rush into anything - take the time to do your research and you could end up wit h a great deal in 2023.

2. Are you looking to provide your children with a secure home while they study?

Investing in property and buying a home for your children to live in while they are studying

could be a great option when house prices decrease. Having a secure home and a

comfortable environment to live in can be invaluable for your child’s studies. It can provide

them with the stability and peace of mind to focus on their studies and help them to achieve

success.

With student halls, student apartments, shared houses and private rentals on the increase,

the cost of renting is high, especially in cities or areas that are popular for students, so it’s

important to consider and compare the rental market before you buy. Research the average

rental prices in the area and decide if it’s a good investment.

When buying a property for your children to live in while studying, you should also consider

the future. Think about what you plan to do with the property once your children have

finished university. Will you rent it out? Sell it on? Or will your children stay there? It could

be a good investment and could save you and your children lot of money in the long term.

3. Is now the time to set up a Special Purpose Vehicle (SPV) for your buy to let property?

In his recent budget the Chancellor has announced that from next year, landlords will be on the receiving end of a capital gains tax raid. This means that when they sell a property that has increased in value, the typical investor could lose £2,600. The annual exempt amount for capital gains tax will be reduced from £12,300 to £6,000 next year, and then halved again to £3,000 from April 2024. Any profits made above this amount will be taxed at 18 per cent, or 28 per cent for higher-rate taxpayers.

When it comes to owning and managing rental properties, landlords have a variety of options at their disposal. One of the most popular methods for acquiring and managing rental properties is through the use of a Special Purpose Vehicle, or SPV.

There are a number of benefits to using SPVs for landlords. Perhaps the most obvious benefit is that it can help you to reduce your tax liability. Special purpose vehicles are treated as separate entities for tax purposes, which means that you can deduct expenses related to the vehicle from your taxable income. This can be a huge savings, particularly if you are a larger landlord with a number of properties. Seek specialist advice from a Tax Expert to understand how it would affect you and where the benefits lie for your own specific circumstances.

In Summary

The housing market has seen above average increases in prices recently with increased mortgage repayments, but first-time buyers may be able to take advantage of lower house prices and better loan-to-value mortgage deals. It is not certain whether a housing market crash will occur in 2023, however potential buyers should do their due diligence and research thoroughly to find the best deals.

Investing in property to provide your children with a secure home while they study could be a great option. Research rental prices in the area and consider the future plans for the property to determine if it is a good investment. As always get advice from your tax adviser or accountant first to determine your best tax choices.

Given the recent announcement of the capital gains tax raid, setting up a special purpose vehicle to manage your rental property could be a great way to reduce your tax liability and ensure that your rental income remains as profitable as possible.

As we approach 2023 with the right advice and planning, it could well be a year filled with opportunity and hope for many.

5 things to help your own financial cost/benefit analysis with the cost of living crisis

Thu, 17 Nov 2022 10:51:41 GMT

Another day, another budget. Not unexpected and served up with an inglorious dollop of harsh reality .

We are one fiscal quarter away from the formal announcement of a recession, inflation just hit 11.1% and yet again, financial fear grips the nation. After the impacts of Brexit and Covid it feels like we have jumped out of the frying pan only to fall straight into the fire.

It would be easily understandable if you were to watch the news headlines from behind the couch these days! Who knew about the real impact of inflation on the cost of everything just a couple of months ago? Tax rises, public spending cuts, Government borrowing are all–big issues and they all represent a worrying time for many households. But there is some control you can wrestle back for yourself, and you can do it now.

The topics covered below are accurate at the time of writing and do not constitute advice. (Nov 17th 2022).

I’ve successfully helped countless clients through property crashes, and a head-spinning cocktail of changing mortgage criteria, but with every challenge there is an opportunity. Where there’s a will, there’s a way.

Speaking of wills and ways, today’s financial environment only increases the importance of protecting yourself and your family or business; structured wills, trusts and insurances can only have a beneficial impact on your worth, as well as your wellbeing.

Mortgage Lending: causing confusion for decades!

For many, the first time we think about Protection ourselves is a house purchase, so it’s worth noting that the issues we face today with mortgage interest rate increases. This has not been simply an overnight reaction to the disastrous mini budget in September ‘22. Rises have been coming for some time due to bigger fundamental issues that have taken place both here in the UK and internationally, going back to 2008. Just about all of them out of our control.

But we still have control over what we can do.

Let’s talk about 5 areas I believe in that you can review or action today. Any one of them could help you gain more control of your choices, allowing you to make better mortgage and personal finance decisions for both your short and long-term financial needs.

What’s my best option: a tracker rate or a fixed rate mortgage?

In times of rising interest rates it’s a big question due to variables and the great question of ‘what if..?’.

Only a few months ago 2 year fixed rates were starting from 2.5% and 5 year fixed rates from 3% and was a much easier decision to make for those seeking certainty of repayments for the fixed term.

Today however we have 5 year fixed rates increasing over a few short months to 5.59%. Locking in today at this rate assumes that the current turmoil will last 5 years. We simply don’t know that. If we look at history, it takes 18-24 months to settle, but of course that’s no guarantee of future performance!

So for those looking to purchase, remortgage or make a product transfer here are some things to consider:

You will have heard of discounted variable rate mortgages and tracker mortgages. Both are variable i.e. if the source rate fluctuates, so does your mortgage payment, but they are priced significantly lower than fixed rates, for example 3.50%.
Discounted rates are those discounted against the lender’s standard variable rate (SVR) and can be changed by the lender at any time. Tracker rates are similar in as far as they are variable, but in this case the lender will offer a rate that tracks the Bank of England base rate. In practice they offer BoE rate plus their margin. If BoE rates fluctuate, so does your mortgage payment.
Both of these products offer good value in the short term and providing we can satisfy ourselves that we can afford the mortgage both now and in the future, it is an option worth consideration.

I should point out that lenders’ stress test a client’s affordability not only at the interest rate at the outset but at higher rates, ensuring that as far as possible, no-one will get into debt that they can’t afford.

In these examples if selecting a variable rate against a fixed rate, when compared to a fixed rate they would need to rise by 2.5% before the borrower essentially loses out. We know more rises are on the way, however what do we think about a major increase of 2.5% in the short te rm?

There is no right answer to this as it is down to opinion and many factors outside of our control. So, we need an escape hatch if possible. Selecting a discounted variable/tracker rate without any early redemption penalties so we can move to a fixed rate at any point without penalty will help provide some of that control.

Paying mortgage down

We’ve established mortgage interest rates are trending up, with clear signals of an additional rise in November. Some homeowners feel the need to pay down their mortgage quickly to lower the cost impact, as a result of rising rates.

However it's important to remove all emotion from financial decisions and develop a strategy that will work for you in the long-term. It can be beneficial to make extra monthly payments towards your mortgage. This reduces your interest payments and can even reduce the length of your overall mortgage term.

While paying off your (most likely) largest debt might seem like the best option to alleviate your anxiety during difficult economic times, it may not be the best way for you to channel your hard-earned money.

Things to consider:

Should you pay down more expensive credit card or loan debt before your mortgage? The average purchase APR reached a record high this month, according to the Moneyfacts. UK Unsecured Lending Trends Treasury Report. Currently, this average APR stands at 29.6%, a rise from the 26.6% recorded in August.
Are your savings rate of interest higher or lower than your mortgage rate? If lower then you may consider an overpayment strategy but if the savings rate is higher you may want to keep your money in savings as it could earn more than you would save in interest.
It may seem obvious, but it is important to remember that if you throw every pound at your mortgage, there might not be enough money left over to pay other obligations. Are you able to save money for emergencies? Are you on track for reaching your retirement goals are you able to afford large expenses in the near future? Before making pre-payments, it is important to consider all your future goals and expenses.

Extending your mortgage term

When interest rates are on the increase along with the cost of living, one consideration is to extend your mortgage term to reduce your monthly mortgage repayment. This lower monthly repayment may be needed in the short term to balance your household budget.

However, it will increase your total amount of interest you repay over the extended term. When considering extending the term you should consider:

Applying an overpayment strategy on future salary or income increases that will claw years back on the term and interest costs. This gives you control over how to shorten your mortgage term and manage payment levels.
Checking your mortgage terms to ensure no penalties apply. Overpayments are generally allowed without penalty at 10% of the outstanding mortgage balance per year.
Some lenders will provide options of a maximum age of 70 at the end of the term, unless income in retirement can be proven in which case age 75, or with certain lenders, age 80 is achievable. If you’re within 10 years of age 67, projections from your pension provider will be required. If you’re outside 10 years of retirement, proof of pension contributions required as part of the application process.

Early product transfer up to 6 months

A product transfer option with your mortgage is basically a product change with your current lender. This involves switching to a new deal with your lender to a more favourable interest rate, and possibly a revised term, if you decide to do so.

You will normally transfer to the new rate when your current deal ends. However, you might be able move to the new rate much sooner than usual, in many cases by up to 6 months. If you review your mortgage now, it gives you the option to look at the whole market to secure the most competitive deal from your current lender today, or secure a new deal elsewhere if more competitive rates are available.

While product transfers can be quickly arranged, it is always a good idea to have an independent mortgage adviser on hand to compare it with the rest of the deals available to you from the whole of the market before you accept your lender’s offer.

Conclusion

It may seem that the debt-free, asset-rich end goal is getting further away with rising interest rates, but it's important to keep your perspective. Your mortgage is only one piece of the financial puzzle. Because of its size (both financially and physically), it can often overshadow other options open to you that are equally worthy of consideration. As with all important financial decisions, research is key. Talk to an expert and then make the best financial decision for you.