2018: A year of opportunity

After a year of uncertainty, what will 2018 bring for the housing and mortgage markets?

House Prices

House prices are reliant on a healthy and functioning housing market, as well as consumer confidence. Whilst consumer confidence is likely to be hit by low wage growth and a further tightening of household spending, house prices are still expected to increase across most regions over the next 12 months, as demand for housing remains high.

Outside of London, the South East is likely to see the largest increase, up by 2.5%, whilst the North East and Yorkshire and Humber will see more modest increases at between 1% and 1.5%, according to figures by Countrywide. House prices will continue to increase across all parts of the UK in 2019.

Where younger people are moving to more affordable parts of London in search of their home owning dream, house price growth is being underpinned here by the increased demand for housing. However, the growth of house prices in these parts is not sustainable in the long term, due to the affordability of buyers. A correction in prices will be needed over the next few years to maintain a functioning housing market.

House price inflation is good news for homeowners and those looking to re-mortgage, as they are more likely to have greater equity in your property and a lower loan to value, which opens the door to better mortgage rates from a range of lenders. However, for first time buyers, it means their ability to get on the housing ladder is further out of reach.

Interest Rates

The Bank of England base rate was increased in November for the first time in a decade to help bring inflation back down to its target of 2%. If inflation remains stubbornly above target into 2018, coupled with low productivity, we should expect another rate rise within the next 12 months, most likely the summer.

Any future interest rate rise will be small at 0.25% a time. Those coming to the end of their fixed rate deal or who are already on a lender’s standard variable rate, should review their mortgage finances and future requirements with a mortgage broker, as they may find they can get a better deal.

An increase in the summer of 0.25% would see a new bank base rate of 0.75%.

Around two million people are on a lender’s standard variable rate and would be impacted almost immediately by the rate change.  A borrower on an average standard variable rate of 4.5%, a mortgage of £200,000 on a 25-year term would see their payments rise by £330 per year.

First Time Buyers

There has been a resurgence of first time buyers as market conditions and the availability of competitively priced higher loan to value mortgages, have made it easier for some first time buyers to get on the housing ladder.

Despite this, it is still tough for the majority of first time buyers to purchase their first home, particularly in London and the South East, where house prices are around 14 times the average first time buyer earnings of £32,000. Making the need to save a large deposit even greater.

Government initiatives have gone some way to helping younger people get on the housing ladder. The extension of the Help to Buy scheme, more shared ownership homes and an abolition of Stamp Duty for properties under £300,000, has been welcomed by some but the impact across the board is limited.

With interest rates still relatively low and house price growth slower, we expect to see more first time buyers enter the market in 2018. The expected sale of properties by buy to let landlords will also provide much needed stock at the lower end of the housing market ideal for first time buyers.

Those thinking of getting on the housing ladder should speak to a mortgage expert about the best way of doing so. A mortgage broker can talk first time buyers through how the whole process works, giving them guidance on lender’s requirements and how they can best position themselves to get a mortgage. They can also advice on how much they can afford to borrow, an important step when beginning to house hunt and setting budgets.

Remortgaging

Remortgage activity surged to a nine-year high ahead of the Bank of England’s decision to raise interest rates in November, with 51,593 remortgages in October – up from 48,133 in September and ahead of the monthly average for the previous six months of 45,670.

With interest rates expected to increase by a further 0.25% in the summer we expect to see higher levels of remortgaging in the first half of 2018.

The high street lenders are keen to take advantage of this increase in activity and the competition between them is high. Due of this, there are some very attractive deals available to consumers and so for some, there has never been a better time to review their mortgage and switch.

If you are coming to the end of your fixed rate deal or are currently on a variable rate, speak to a mortgage broker about your finances. They will be able to review your current position, discuss and understand your plans and advice upon the options available to you, so that you are in pole position to take advantage of the potential savings that remortgaging can bring. In some cases, the savings can be significant.

According to Moneyfacts and based on figures as at 1 November, the difference between the average mortgage rate of two years ago (2.67%) and the current Standard Variable Rate (4.60%) now stands at 1.93%, the highest variation seen since October 2008 (when it hit 2.02%).

What’s more, lenders are introducing more competitive three and 10-year fixed deals as consumers show an increasing appetite for these, so it is potentially worth considering to lock in for longer, dependent on your circumstances.

 Buy to Let

2017 was a challenging year for buy to let landlords as the Government implemented a range of policies to kerb investor appetite.

From April 2017 buy-to-let investors who own their properties directly, started to lose the ability to offset mortgage interest from their profits before calculating their tax liability. In 2017, landlords could offset only 75% of their mortgage interest against their profits, falling to 50% this year, 25% in 2019 and zero in 2020.

This, along with the changes to Stamp Duty and more stringent lending criteria implemented by the Prudential Regulation Authority (PRA), and landlords are having to make some tough decisions about their portfolio. We expect some will look to offload properties to better balance their investments.

Landlords may find it beneficial to take out longer fixed rate mortgages and take advantage of current interest rates to give them more security over the next few years.

Whilst the government went softer on landlords and investors in the Autumn Budget, the Chancellor may use next year’s Budget to further tighten policy to deter landlords from growing their property portfolios.

By Michelle Niziol, CEO, IMS Property Group

www.imsinternet.co.uk