Has The Election Afffected Borrowing ?
A positive aspect of the government’s efforts to cut spending rather than borrow more has encouraged investors to buy bonds again, which has had a knock on effect on the cost of five year swaps , which influence the price of fixed mortgages, falling from 2.84% to 2.46%.
This has seen the cheapest 5 year fixed mortgages drop from 4.49% to 4.15% since the election – good news for investors, and giving indications on where lenders see interest rates.
I have expected interest rates to stay lower for longer than many have suggested – with several commentators expecting rates to have risen by 1% through 2010, and around the same each of the subsequent 2 years.
Current indications are interest rates will still be at 0.5% until at least the second quarter of 2011 – good news for all of us with multiple tracker mortgages!
As mentioned previously this is a good opportunity to either overpay on your mortgages, or at least save some funds where you can, making the most of the very attractive current borrowing rates.
For example if your home is on a tracker and your mortgage interest payments have dropped by 50%, if you maintain the payments each month you will reduce your capital owed overall.
So overall positive news for borrowing rates staying low...!
How are house prices doing in your local area?
As always there are marked regional differences in house prices currently – with some areas rising by as much as 28% over the last 12 months!
As always the right property at the right price will sell. The top cities over the last 12 months have been St Albans which has seen rises of 28% year on year, Cambridge at 26%, Oxford at 18% and London at 16%.
House prices as a whole are up in the south by 12.3% year on year, and in the North by 7.8%. From the 2007 peak, prices are around 7% below.
Considering the huge tightening of credit and the loss of jobs in the UK this seems very good, and shows the robustness overall of the UK property market.
The positives are, there are over 50% more mortgages being approved each month – around 50,000 - from the low of 30,000 per month at the peak of the credit crunch, but still a long way away from the pre credit crunch norm of 90,000 per month. Clearly the public sector job cuts will have an impact with certain areas more dependent on public sector likely to see an impact on house prices, but overall considering the large rise in unemployment over the last 18 months – with over 1 million losing their jobs, a drop in average house prices at this stage of just 7% shows overall property can be a strong, robust investment going forward.
What the credit crunch has done is give people who can get mortgages, a very rare opportunity to exploit this situation and buy properties as much as 25-35% below current valuations. We have seen investors who had not previously bought pre credit crunch realise what a golden opportunity they now have been presented with – as the banks are keen to lend to new lenders more than people like myself with large numbers of mortgages!
With borrowing rates attractive compared to current rental yields the figures all stack up nicely for those looking to make the most of current market conditions.
With pensions continuing to get bad press, clearly it makes sense to look to safeguard your own financial future and buy to let is one of the best ways to do this.
Buy a discounted property, with equity on day one, put a good managing agent in place to manage the property and the tenant, cover the costs each month, and then in 5-25 years time you will have an asset that has gone up in value while someone else ie the tenant has paid the borrowing costs for you! And you can get on with your own life, knowing over time that asset will rise in value.
Ie buy a property valued at £100,000 now for £75,000 – in 5 years time this may be worth £110,000, in 10 years time £130,000, and in 20 years time perhaps £200,000 giving you a large amount of equity and a far greater return if you sell or refinance at this stage.
So overall while the economy will not be fantastic in the UK for the next few years take the positives of this ie big discounts can be negotiated, strong yields are available and interest rates are likely to stay low for several years – and make sure you do not miss out on this great opportunity.
Article Courtesy of Alan Forsyth @ Property Investment Deals
