central-london-property

Will A Covid Vaccine Bring Back Central London Property Prices?

During the coronavirus pandemic, house prices in central London challenged expectations by declining in value. House prices in the prime location fell 1.6 per cent compared to last year. This is partially due to decreased demand with post-lockdown buyers fleeing urban metropoles in search of the countryside, larger properties for home working, and gardens. City-lovers continue to question the advantages of living in the heart of a city where the buzz is on pause. Theatres, galleries, restaurants, clubs and bars have not been in normal practise for close to a year. A swift commute to work is not the luxury it used to be when you're working from home 80% of the year. A central studio flat is also not an ideal space to act like a home, office, cinema, gym and more.

What difference could a vaccine make?

The City Buzz

The announced vaccine has the power to restore the London buzz and vibrancy that allures people to the city in the first place. As entertainment industries reopen, the hope is that the bustle will return perhaps with a new-found vigour in its revitalisation. 

"The real challenge for London's prime market is supporting buyer demand and attracting buyers willing to pay more to be in a buzzing city full of all the entertainment venues, restaurants, theatres, etc. that they have come to expect. It's difficult to put a number on it but prices are definitely looking rosier with a vaccine than without next year and beyond," says Marcus Dixon of LonRes.

The Workplace Commute

As workplaces get back to normal without the fear of infection, the commute will return and boost the city centre housing market. Knight Frank's Tom Bill thinks that the one-bedroom city-centre flat which has fallen out of favour, could then be revitalised.

"If you look at one-bedroom flats in urban locations that have perhaps fallen out of favour in the past months, it's quite a good time if you're a buyer or investor to look at those. These are the types of early signifiers that smart money reacts to and further down the line rest of the market following suit."

Pied-a-Terre Properties

The central one-bed properties are likely to be snapped up by a growing group of buyers who have recently left London. Those who headed for nature are likely to find themselves needing to commute more often than expected from their country homes. These now comparatively good-value properties will serve buyers looking for a temporary place to rest their head, according to Central London agents. With a tidy sum left over from the move from the capital to the country, the pied-a-terre market is expected to grow. 


green-mortgage

Eco-Friendly 'Green Mortgages' To Become The Norm

Recently, the UK population becoming increasingly eco-conscious has allowed 'green mortgages' to find their place in the mainstream market. They offer borrowers preferential rates directly linked to the energy performance of their properties. As a result, it gives home buyers and investors an extra impetus to look at newer, more eco-friendly properties to keep costs down.

What Are Green Mortgage Products?

The fact that many of us are aware of what these product options are is one of its most significant struggles. The sector offers better-rate mortgages for properties with eco-friendly energy performances. Therefore, in practice, if you are choosing to buy an energy-efficient property, your mortgage rates will be better! 

Research from Intermediary Mortgage Lenders Association (IMLA)found that 43% of borrowers hadn't heard of Green MOrtgages. More than a third of borrowers also wrongly believed green mortgages would cost more. The statistics show that around 77% of eco-aware lenders offer green products that are equal to or cheaper than a standard mortgage. Currently, only a relatively small number of lenders provide green mortgages, but the survey saw 29% planning to introduce such a product. A further 35% of agents also plan to advise buyers on green mortgages in future.

Why Are 'Green Mortgages' Becoming Popular?

As of yet, there are only a few lenders in the UK offering better-than-normal rates on eco-friendly properties. However, a growing trend for eco-friendly products across sectors has provided an added incentive for investors. When focussing on eco-trends, it is evident that this is a growing one, with more people becoming dedicated to doing their part against the devastating effects of climate change. This entices more buyers to steer towards eco-friendly products and properties. There are plenty of indicators that eco-friendly mortgage products will improve in number. Lenders and advisers alike are beginning to recognise the potential of green mortgages and advise buyers accordingly.  

The effects of the Covid-19 lockdown may have spurred this by providing a glimpse of a world with reduced carbon emissions. As a result, the growth of green finance is sure to continue to accelerate. The IMLA also reported that 74% of lenders think green mortgages will be more significant in the finance sector in future, and increased interest has already been noted since the pandemic outbreak.

The reasons for this growth in popularity are vast and varied, but most regard either the environmental or financial factors. Some buyers wish to improve their carbon footprint by living in a more environmentally friendly property. However, cost savings entice more than half (53%) of consumers. 

What Issues Does The Green Market Face?

Eco-friendly properties face the problem of cost when going green. 27% of property owners agree that affordability is an issue for them. Many investors do not find it worth the price of improving energy efficiency. To combat this, the Government has created The Green Homes Grant which could act as a great incentive. Green mortgages work as a great alternative option for customers, but there are considerable barriers which still stand in the way towards growing the green finance sector. The Government has committed to making Britain carbon-neutral by 2050 and, to do so, the existing housing stock will have to make changes to create more energy-efficient homes. 

 


first-time-buyers

Will First-Time Buyers Set To Receive Low-Deposit Mortgage Deals?

Prime Minister Boris Johson has pledged 95% mortgages for two million first-time buyers. The Government unveiled plans for 'generation buy' at a virtual Conservative Party conference. The Prime Minister said: "We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95 percent of the value of the home — vastly reducing the size of the deposit."

 

How Will It Work?

The Government has revealed intentions to make 95% mortgages more extensively available for first-time buyers, but it is still uncertain how the proposals would work. The Prime Minister discussed the issue facing two million prospective first-time buyers who could afford to pay mortgage repayments but are having difficulty getting approved for a home loan. He believes the Government has a role to play in unlocking low-deposit loans to generate 'the biggest expansion of homeownership since the 1980s'.

The proposal is also reminiscent of government-backed low-deposit mortgage schemes introduced after the 2008 crash. A similar program was launched as part of the Help to Buy plan during the 2008 recession because of banks withdrawing their high loan-to-value mortgage products. Previously, there were 100 percent loans on offer for buyers.

The Government has not released any details on how the scheme might work. According to a report by The Telegraph, one prospective design is for banks to get rid of the rigorous stress tests that were introduced after the financial crash. Rather than the stress tests, the Government could impose a guarantee for these higher loans. This would remove the risk placed on lenders, allowing them to offer low-deposit loans without worry. The tests are designed to assess whether a buyer will keep up mortgage repayments should interest rates rise from their current rate of 0.1%.

 

How Could The Scheme Help First-Time Buyers?

Boris Johnson said that the scheme will help up to two million people who can afford mortgage repayments but can't currently find home loans. While high loan-to-value mortgages were widely offered at the begging of this year, the COVID lockdown caused many lenders to withdraw their products. Banks and building societies were inundated with a backlog of inquiries when the housing market reopened, and some became overwhelmed with the demand. The decision to remove the low-deposit mortgages may have been due to economic uncertainty - as the economy walks a tightrope many lenders wish to distance themselves from providing riskier loans. 

In theory, first-time buyers will be able to buy with a five percent deposit once again under the new proposals. The result hopes to "turn Generation Rent into Generation Buy." However, buyers should still be aware of the possible risks that remain. When you buy a property with a low deposit, there is often a greater risk of negative equity if the property market doesn't rise but instead declines. 


bridging-rates-fall-50%

Dan Kettle Comments on Bridging Volumes Halving in Q2

According to the latest report by Bridging Trends, bridging volumes halved during Q2 as a result of the covid-19 lockdown. £79.4m worth of bridging deals were completed from May to July 2020, down from £184m in the same period of 2019 and from £123m in Q1 2020.

As a result, in the six months to the end of June 2020, bridging volumes declined by £168m to £202m, compared to £370m in the first half of 2019 - something that brokers and lenders considered as 'inevitable' given the circumstances.

How bridging fell by 50% in Q2

Bridging interest rates rose during the period, perhaps reflecting the increased risk and more limited product availability during the period.

The average weighted monthly interest rate in Q2 2020 increased to 0.85 per cent – up from 0.8 per cent in Q1 and 0.75 per cent in Q4 2019. This is the highest average monthly interest rate recorded in Bridging Trends data since Q3 2016. Investment purchase and re-bridging saw notable increases as the reason for borrowers accessing bridging finance.

A quarter of deals were completed for investment, up from 20 per cent in Q1, while 13 per cent were as re-bridges, up from 8% between January and March.

In contrast, chain breaks made up just one in 10 bridging deals, down from 20 per cent in Q1, while heavy refurbishment dropped from 13 per cent of transactions to 10 per cent.

Dan Kettle of Octagon Capital commented: “The drop in bridging volumes is unsurprising. During the covid-19 lockdown, very little action could really take place, since there was no property valuations, certainly no auctions and most lenders had temporarily turned off their lending.”

“But that does not mean that things won’t improve. There has been real enthusiasm to get deals done and get out there at the moment, especially whilst covid-19 threats are relatively low and if a second wave comes back to bite us.”

 

 


What is Regulated and Unregulated in Bridging Finance?

Bridging loans or bridge finance, will typically fall under regulated or unregulated activity - and this can have quite an impact on the application process, eligibility and terms that you receive. In this article, Octagon Capital aims to explain the difference between regulated and unregulated bridging - and how you can find the best product for you.

As a rule of thumb:

  • Any residential bridging is regulated (if it is their primary residence)
  • Any commercial bridging is unregulated (including offices, garages, warehouses)

 

Regulated Bridging Unregulated Bridging
70% Maximum LTV 75% Maximum LTV
First and Second Charge Mostly Second Charge
Subject to Status All Credit Statuses Considered

What is the regulation for bridging loans?

When it comes to regulated bridging loans, the FCA is the main regulator in the UK for any mortgages or deals. Essentially, they have strict regulation and guidelines in place to ensure that borrowers do not risk losing their primary residence when borrowing and there is adequate protection in place.

So typically, you can borrow against residential properties, such as buying a place for buy-to-let purposes. However, you cannot borrow a regulated bridging loan if it is secured against your own primary residence.

Part of this is the Mortgage Credit Directive (MCD) which is an EU framework for mortgage firms and is overseen by the FCA. There are a number of measures in place to offer transparency to customers, such as showing them any rates beforehand as an APRC and also giving applicants a reflective period in case they want to change their mind or request more information.

For the regulation surrounding SMCR, this is for senior managers of investment firms under the FCA - and does not apply in this case.

 

regulated-bridging

Borrowing against flats and places of primary residence will typically fall under regulated activity

 

Regulated bridging loans and mortgages are available by first charge or second charge

First charge loans

This refers to the 'first charge' that is taken from your bank account each month, so often refers to as your first mortgage, which could be against your main residence and property that you live at, or an investment.

Second charge loans

This refers to the 'second charge' from your bank account, taken out after your first charge. So you could have a mortgage against your home (this is your first charge) and then another mortgage or bridging loan against an investment product (this is your second charge). You can also get a second charge against your existing home, known commonly as a second mortgage.

Importantly, the amount you can borrow on your second charge is less than your first charge, since it is second in the queue when it comes to repayments each month.

You can use the same lender for both first and second charge, or use a different one for each.

 

What is unregulated bridging loans?

When bridging loans are unregulated, they are conforming to some essential guidelines, but there are a lot of flexibilities when it comes to the criteria and lending to people with adverse credit histories. Loans in this nature are commonly by means of second charge, and with faster processing and applications, they typically make up around 50% to 60% of all bridging deals (regulated rarely gets more business than unregulated in this sector).

Unregulated business is often for commercial properties including:

  • Offices
  • Petrol garages
  • Schools/ Hotels/ Farmhouses
  • Warehouses
  • Factories
  • Gyms
  • Other business purposes

 

unregulated-bridging-loans

Offices will typically fall under unregulated activity

 

What does non-status bridging loans mean?

Non-status bridging means that it does not take credit status into account. So where regulated mortgages and most financial products require a strong credit score, this is not the case with non-status lending. Therefore, lenders are willing to take a view on adverse credit histories or limited credit histories and may look at other factors such as the potential value of your property and the opportunity.

 


rishi-sunak

Chancellor Sunak Proposes Immediate Change to Stamp Duty

Rishi Sunak has stated that a stamp duty cut will not be delayed, following warnings that this would cause considerable damage to the housing market. Talk of delaying the stamp duty cuts have raised fears that property purchases would grind to a halt, as many would simply wait until these cuts were implemented to save themselves thousands of pounds.

Economists and property experts have voiced their concerns over implementation of the cut, originally suggested to be put in place Autumn this year. Such experts have claimed that waiting until this long to put the cut in place could cause a deep freeze to the housing market.

Institute for Fiscal Studies’ Paul Johnson has commented that Sunak must choose to launch the stamp duty cut tomorrow or rule it out entirely, and furthermore that “To do otherwise could ruin the housing market for months to come”

Economist Julian Jessop commented the following on the matter: “the announcement of a stamp duty holiday, but not until the autumn, could kill the housing market in the meantime.” 

“There has been similar speculation of an across-the-board VAT cut, which could delay spending on other big ticket items too.”

Others have claimed that this cut to stamp duty could help to drive the demand for housing throughout the U.K., former Tory Chancellor Philip Hammond commenting on the BBC Radio 4 Today programme that:

'Cutting stamp duty, reducing VAT in particular sectors, are certainly ways to bring forward or manage demand. 

'But I think the Treasury officials who will have been working up all sorts of proposals for him during the lockdown will be telling him that the history tells us that cutting VAT or cutting stamp duty can bring forward demand but it doesn't overall increase the level of demand, it simply shifts the pattern of it.' 

This cut is expected to be part of Sunak’s coronavirus recovery package, including ‘holiday’ from the charge of six months. Sunak is under increasing pressure to set out future plans for financial support for businesses, as many sectors continue to struggle from the effects of the COVID-19 pandemic.

The stamp duty cut is said to be the focus for the Chancellor’s financial address tomorrow, which is also expected to discuss the £2 billion to be used for homeowners to better insulate their properties, and the £1 billion that will attempt to make hospitals and schools greener.


Gareth_Lewis_mtf

Mortgage Brokers Expect a 6 to 9-Month Recovery

The COVID-19 lockdown has had a considerable impact on the property industry, potential property buyers limited in viewing new potentials, whilst those in the bridging finance sector were forced to stop all lending, able to only work on existing deals they were already managing.

It’s been confirmed by mortgage lenders all over the U.K. that there will be significant restrictions to lending criteria. On top of this, there have not been any property auctions to have taken place recently – an important source for generating commercial deals within the industry.

An MT Finance survey found that 54% of participants predict the economy to take 6 months to a year to recover from the impacts of COVID-19, 14% seeing a recession in the foreseeable future.

In the same survey, 40% of mortgage industry brokers feel the property market will need six to nine months to recover properly from the impacts of COVID-19.

Additionally, MT Finance also found that 27% expect it to be a year or more for the market to fully recover.

Gareth Lewis, MT Finance commercial director, commented: “These results offer an interesting insight into just how long those working in the industry believe the UK property market and wider economy will take to recover.

“While the government’s furlough scheme has evidently had a positive impact on unemployment- some further government stimulus would be very welcome to resurrect the property market once lockdown is lifted, such as a stamp duty holiday or concessions.”


christoper-woolard

Homeowners Offered Additional Three Month Mortgage Holiday

During the beginning of the U.K.’s lockdown period, a near 1.8 million households took advantage of the three-month mortgage payment holiday as a means of support during this difficult time.

The mortgage payment holiday scheme saw around 20% of the U.K.’s total population benefit from its offerings, which not only included a break from mortgage payments, but also other financial support products such as credit cards, personal loans, interest-free overdraft facilities and more.

The Financial Conduct Authority (FCA) have confirmed a second term of mortgage payment holidays will be made available if the U.K. are hit with a second wave of COVID-19, and subsequent lockdown measures reappear.

Interim chief executive of the FCA Christopher Woolard confirmed:

 

“Clearly, if there are further restrictions that need to be placed for health reasons; if the situation becomes
more complicated in some way, then we’ll have to think about how we adjust to those circumstances,”

However, whilst a second mortgage holiday is now on the cards if a second wave were to appear, Woolard expressed that 50% of those who used these payment holidays initially were now able to make payments:

“About half of that group are people who perhaps thought they were going to lose a job or have some
other kind of impact, and in fact they’re in a position where they could still afford to pay now that that
ninety-day period is coming to an end,”

“It’s everyone’s best interest to actually get back towards payment wherever that is possible or even
partial payment, but we have to recognise that there’s an ongoing situation here,”

 

Specialist finance provider at OctagonCapital Dan Kettle commented: “Taking mortgage payment holidays
might seem like a healthy way to keep your finances in track and it certainly plays an important role for a
lot of homeowners. However, you may look to remortgage at some point or maybe even apply for a new
mortgage altogether if you plan to move home soon.

“With mortgage providers only getting stricter with their criteria, you probably don’t want to have any
payment holidays on your credit report, so if your job and income is stable, you should ideally try keep up
with payments and avoid holidays if you can.”


couple looking at finances

How Much Deposit do I Need for a Bridging Loan?

When you enter a bridging loan, you will usually need to put down a deposit. This is a lump sum paid upfront. The amount you will need to pay as deposit depends on the amount you want to borrow, the value of the property you are looking to purchase and the LTV (which is dictated by your lender). Your deposit will be at least 20% to 25%, as the LTV available on a bridging loan is 70% LTV or 75% LTV unregulated. The deposit represents the proportion of the property you own outright, the LTV is the rest of the property which you pay off with a bridging loan.

What is LTV?

LTV stands for loan to value; this is the ratio lenders use that shows how much you may be able to borrow versus the value of the asset you want to borrow against.

For example, if you wanted to purchase a property worth £100,000 and wanted to borrow £75,000, the LTV of the loan would be 75%. Your deposit would be the other 25% which would be £25,000.

What is the difference between regulated and unregulated LTV?

Currently only part of the bridging loan industry is regulated by the FCA. The FCA are the Financial Conduct Authority, which regulate financial services firms in the UK with the goal of protecting consumers and ensuring the integrity of the UK financial industry.

A regulated bridging loan would be one which falls under the protection of the FCA, these are usually residential ones. Regulated bridging loans aim to offer consumers a heightened level of protection and peace of mind.

At this time, all commercial bridging finance is unregulated, meaning the FCA does not supervise this area of the industry. If you’re securing a loan for an investment property, a commercial building, or for a buy-to-let it will not be regulated, meaning you VTL will be 75%.

Can I get a bridging loan with no deposit?

Bridging finance - is your provider regulated? | Business Law DonutYes, you can get a bridging loan without putting down a deposit. However, you may need to look at different types of products such as mezzanine finance. Mezzanine finance allows companies to give up some of their equity to secure a loan. You can find out more about mezzanine finance here.


remortgage

How To Use Remortgaging to Release Equity

Many homeowners in the UK are taking advantage of low mortgage rates and through remortgaging, are finding ways to release equity from their homes. According to Remortgage Quotes Online, you can switch your standard variable rate (SVR) from around 4-5% APR to a fixed remortgage rate of 1.3-1.7% during the introductory offer.

The result of record low mortgage rates means that you can potentially borrow more money against your home, whilst keeping your mortgage payments each month roughly the same.

Releasing money through remortgaging is mostly used for:

  • Home improvements
  • Debt consolidation
  • Christmas shopping and presents
  • Family holidays
  • Gifting to other family members

How Can You Release Equity Through Remortgaging?

To be effective, you will need to have the following:

  • Good amount of equity in your home
  • Good/fair credit rating
  • Good affordability to remortgage
  • Stable income (not recent fall)

In order to remortgage, you will need to meet the checks from the mortgage provider, which have become more stringent over the years. They want to seem a strong affordability, which means that your salary is stable or going up (not falling drastically) and your expenses are not going beyond your means.

If you have a poor credit rating since getting your original mortgage, this can impact your chances of getting a new mortgage deal - or you could be stuck on your standard variable rate.

Naturally, to release money from your home, you will need some equity in it, which is achieved by paying off your mortgage on time for several years.

We review some of the options below:

Release Money When You Remortgage

When applying for a remortgage, you can ask to release or borrow money too - and the payments will just be adjusted to your existing mortgage loan. You may have heard the phrase or your parents complain "Well, I will need to remortgage the house for that one." And this is exactly the case.

remortgage

The more equity you have in your home the better, otherwise releasing through a remortgage with little equity will just increase your monthly payments.

Second Charge Loan or Advance

You can get a 'top-up' when you remortgage, also known as an 'advance' or simply a second charge loan.

In this instance, you are getting an additional loan to your mortgage and this will mean having two loans on different terms. One could be fixed for 5 years and the other could be variable for 2 years. You cannot borrow as much with the second loan as with the first and the amount you can borrow is based on your affordability. Failing to keep up with repayments can have a negative impact on your credit history and cause you to lose equity in your home.

Equity Release

This is only available to homeowners over the age of 55 and this allows you to release equity from your home, and pay off your mortgage at the same time. This is becoming an increasingly popular for the ageing population in the UK and is currently used by around 60,000 households per year, who borrow on average around £80,000.

 

Through equity release, you are able to receive one large sum amount, upfront, which is completely tax-free. In exchange, you simply give up some equity in your home, which is claimed by the lender when you die or go into long term care. There are monthly interest repayments or you can choose to have an interest only or rolled up interest added to the full outstanding amount. You also benefit from the house increasing in value, which is then used to pay off your outstanding debt.

You can typically borrow around around 25% to 60% of your property's value through a lifetime mortgage, which is a type of equity release product designed to last your lifetime. Or if you want to borrow money, you can use a home reversion scheme to borrow up to 80%, but this will mean physically selling of your home and you will not be able to benefit if it goes up in price in the future.