Since Covid-19 struck Infinity has hosted a number of popular webinars on a variety of topics. Last week we tackled the property market in the UK in the 2020 post-pandemic landscape with input from some industry hard hitters.
Danny Broadfield, Associate Director of CBRE, the world’s largest commercial real estate and services and investment firm gave us an overview of the UK property market while Samuel Lee, Senior Adviser at Capricorn Financial Consultancy, London’s largest mortgage broker, talked us through the mortgage landscape.
Here are eleven takeaway points from the webinar:
Covid-19 has triggered a drop in prices and volume of sales for UK property
The property market in the UK got off to a flying start in 2020 following a positive election, a conclusion of sorts on Brexit at the end of January which triggered a favourable exchange rate. CBRE closed 180 sales out of Asia alone in the first two weeks of January with a level of transactions not seen since 2017.
Then came Covid-19 and with agents and surveyors unable to access properties, the market pretty much ground to a halt. The uncertainty triggered by the pandemic caused consumer confidence to collapse during the lockdown phase and prompted a dramatic decline in sales. As lockdown is easing the UK property market is slowly starting to reignite but economic growth will be slow.
CBRE are predicting a drop of 40% in the volume of sales in 2020 compared to 2019 and don’t see the market returning to 2019 levels until January 2022.
In terms of prices, CBRE are predicting a decline of 5-10%, this is based on offers accepted over the last 3-4 weeks at 5-10% below the asking price, compared to 1 to 2% in January.
The UK property market will not see as severe a drop as after the global financial crisis
There has been widespread fear that the pandemic will trigger price drops to match those of the global financial crisis however, given that the pre-Covid property market was characterised by a market which had already been flattened by Brexit, with fewer distressed sales due to government measures introduced in response to the pandemic such as mortgage payment holidays, a lower average loan-to-value ratio and a more favourable employment situation, it looks unlikely that we will see a drop in prices as significant as the 18% from peak to trough during the GFC (and also the recession of the early 1990s).
The Bank of England’s Chief Economist Alex Haldane reported recently that the UK is doing better than forecast, optimistically predicting a V shaped recession.
Now IS a good time to invest in property in the UK
Now is definitely a time when you can get a good deal. Developers are offering bigger discounts than they were at the start of the year and the decline in transactions means that they will be more willing to reduce prices.
In addition, with the Bank of England base rate at an all-time low of 0.10%, mortgage rates are particularly attractive. Typical interest rates for overseas buyers are between 2 and 4%. The higher the deposit you have, the more choice you will have and the lower the interest rate is likely to be.
Bear in mind though that property should be viewed as a mid to long term investment. If you’re looking to flip a property to make a quick buck in the short term, forget it. You won’t.
The best places to invest in UK property
Property in London represents a good investment – central London properties are always in high demand. To give one example of an attractive prospect, a period conversion in Borough, London (zone 1) offering rental yields of around 3.8 -3.9% on 1 bed apartments and 4% on 2 beds (gross average rental yield for zone 1 is 2.94%).
Birmingham, the UK’s second city in terms of GDP, is also booming at the moment. HMRC is moving its head office to the city and huge corporations including Deutsche Bank, HSBC, PWC and Deloittes are establishing back offices there with leases starting in 2020 and 2021. The HS2 high speed train will also slash journey times between Birmingham and London making the city a good investment bet for affordable properties outside the capital.
Can I release equity in an existing property to invest in a new property?
Yes, this is perfectly possible and quite common. Remortgaging a property to take a loan of up to 75% of its current value is a great way for expats in Asia to release equity to invest in their next purchase whether in the UK or locally and expand their investment portfolio. Remortgaging often enables homeowners to take advantage of lower interest rates.
Can I get an interest-only mortgage?
Interest-only mortgages, whereby you are repaying the interest on the loan but not the capital, are an option better suited to medium term investments. Monthly repayments will obviously be lower than with a typical repayment mortgage. They can be a good choice for buy-to-let properties where the rent will cover the interest payments and the principle can be repaid in lump sum payments or upon the sale of the property.
Can I finance a property for my child to live in?
This is a fairly typical expatriate scenario with parents acting as the guarantor for their child enabling them to get on the property ladder or increase the amount borrowed. It can help reduce stamp duty and act as a useful estate planning tool however only certain lenders offer this type of guarantor mortgage and independent legal advice should be taken. Applicants must be 18 or over.
Is commercial property a good investment at the moment?
Covid-19 has left big question marks over how people will work in the future. Not only are some big companies struggling but the massive shift towards working from home during the pandemic has caused many to question whether they need big office spaces or whether they can reduce the size of their offices and rethink how workplaces are used in order to lower overheads while still maintaining efficiency. It seems likely that there will be a glut of commercial property on the market which will trigger a fall in prices. In addition, commercial property lenders will often not go beyond 50% loan-to-value, will demand blue chip tenants and charge higher interest rates. The general consensus is that commercial property is a high-risk investment in the current market conditions.
What documents do I need to apply for a mortgage?
You will need:
ID
Proof of income
Proof of address
Bank statements
Evidence of deposit
Mortgage companies, such as Capricorn, will assess your financial position, submit your dossier to their lenders and can have an in-principle decision within 24-48 hours with no upfront fees. Most lenders will require a survey of the property and a mortgage offer, valid for six months, which can be issued within six to eight weeks.
Can I get a mortgage on a house in the UK if I don’t want to let it out?
Yes, this is classed as a residential mortgage and rates are attractive as this type of loan is considered lower risk by the banks. The lending will however be based on your personal income and finances so you must prove that you are able to meet your outgoings and commitments in your home country as well as all the costs on the new property, which may make it harder to get approval. To give an example, a Capricorn client based in Singapore recently obtained a rate of 1.19% fixed for two years on a residential mortgage.
Are loans being executed in the current landscape with Covid-19?
Movement has been slower because some bank staff are furloughed and many retained staff are working from home but lenders are accepting applications and offers have been going out over the last few weeks. Approval is taking a little longer than usual but doors are open.
We hope this information is fairly comprehensive but if you have any questions at all about investing in property in the UK we’d be happy to answer them. And if you would like to take the plunge and invest, we have the expertise and experience to ensure that you make the right choice to complement your existing investment portfolio. You can contact us via email at info@infinitysolutions.com.
A leading provider of expat financial services and wealth management services across Asia.
