The dreaded ‘B’ word has haunted the British public for two years and will continue to be the topic dominating the news agenda for many months to come. Our office has been no different from others up and down the country. Some days we despair of Brexit, but mostly we’re approaching it as a challenge – one of many we’ve successfully navigated during the last 16 years at Large Mortgage Loans.
Our Associate Director Matthew Hillyer is our resident Brexit guru, and has a few thoughts on what we have learned so far.
Lenders are always adapting their products to suit the market
Like all challenging times, there are certain situations that keep cropping up – and lenders are quick to adapt. Development exit products are a great example of this.
Commercial developers usually enter into development finance agreements, which can be complex. If they struggle to sell all of their units in a stagnant market – as we have at the moment – then developers often don’t have the funds to pay the development finance back and so it becomes a costly exercise to service the debt. That’s where developer exit products are so helpful.
They’re effectively cheap bridging loans that don’t have early repayment charges. That means a developer can break free of their development finance arrangement, and their finance works on a rolling, month-by-month basis meaning as soon as units are sold they can begin to pay off the finance.
In this challenging housing market, we have recommended this type of product to a number of our commercial developer clients, leading to significant savings.
Remortgaging is proving challenging for some
My house is worth at least what I bought it for, plus 15% right? Wrong.
Brexit has had an effect on house prices across the board and where we are really seeing people experience problems are property valuations. Don’t presume your home is worth what you paid for it in 2014 – or that it has risen in value since you bought it ten years ago.
Realistic valuations have been a shock for some clients, who were banking on being able to realise more than their property is worth in the current climate. A valuation should be your first step when considering refinancing. Talk to us if you want to know more.
Brexit is creating property portfolios
We are seeing a number of people becoming what we call ‘accidental landlords’. Sellers are not getting the values they want or need for their properties and so instead of selling up, they’re hanging onto their properties and renting them out.
Although most of the talk has been about the stagnation of the housing market, it’s actually been really positive for a number of our clients as – with the right financing – they’ve been able to buy in areas they were previously priced out of. This has been a popular trend with our clients looking to move out of central London into the outskirts where they can get larger homes and outside space to accommodate growing families. They can get more for their money now than before Brexit and – with their finances structured correctly – they can also afford to hang onto their city pads and rent them out.
Long term, a number of our clients are in a better situation than before Brexit and, if they can afford to hang onto their properties, they will certainly reap the benefits in the coming years.
Plan for the long term
According to the major lenders, demand for five year, fixed rate mortgages is higher than it has been in a decade. Rising interest rates and uncertainty has led more and more people to think about the long term – and the gap between the rates of two and five year products is often very close.[i]
Looking even further ahead, the number of ten year, fixed rate deals has grown exponentially – at the beginning of this year there were 150 compared with just 16 five years ago.[ii]
There’s a premium to be paid for flexibility, so if you are certain about what you want to achieve and where you will be in ten or five years then it’s certainly our recommendation to take advantage of that and lock in for the long term.
Markets hate uncertainty
No-one knows how Brexit will end and that uncertainty is very challenging for markets. As with all times of turmoil, there will be winners and losers in both the short and long term. One thing we’re relatively certain of is that, until Brexit is clearer, it’s highly unlikely there will be any change in interest rates.
Mark Carney and the MPC have made clear their intention to slowly raise rates to meet inflation targets, but they will want to have every tool in the box to combat the effects of Brexit when it does eventually happen – assuming that it does of course! One thing we have learned these past few months is that – when it comes to Brexit – one can never quite tell what’s going to happen next.
If you have any questions, thoughts or concerns about financing, don’t hesitate to get in touch with the team here at Large Mortgage Loans to discuss your personal requirements. We’re just a phone call or e mail away and are always on hand to offer specialist advice, tailored to your individual situation.
[i] https://www.ft.com/content/c3aa8b1c-b1f8-11e8-8d14-6f049d06439c
[ii] https://www.thisismoney.co.uk/money/mortgageshome/article-6619665/Number-10-year-fixed-mortgages-jumps-16-150-just-five-years.html
Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.
The Financial Conduct Authority does not regulate some aspects of buy to let, bridging finance, commercial mortgages or business finance.
