A lack of activity from both buyers and sellers at present means that, whereas sellers aren’t in the best possible position at present, people looking to buy property are actually at an advantage, if they’re willing to look around and wait for the right deal. Here’s a run down of the current climate with a short introduction to economics.
The property market amid Brexit: what’s the state of play?
Markets don’t like uncertainty. Political uncertainty makes it hard to make sensible economic decisions because it’s hard to predict the future. There’s little movement in the London housing market at present and buy-to-let business has reduced a lot. This is the result of the uncertainty in UK politics combined with government regulations which have made it harder for people to obtain buy-to-let mortgages. And for some reason this effect seems stronger in London.
Brexit property prices and the Brexit property crash
A cold market is a buyer’s market with few people buying, reducing competition between buyers and their offers. This can lead to a decrease in property prices and although asking prices are unlikely to fall drastically as a result of this inactivity, they definitely won’t be increasing anytime soon. Prices for residential property always vary throughout London but this effect is seen across the whole city at present. People who are keen – or need – to sell quickly may have to accept slightly lower offers than they would when the market is warm. You can read more about the current climate in the sale of London homes in our recent blog post.
What does this mean for you as a buyer?
If you’re not in any urgent rush to purchase, it’s definitely worth your while keeping an eye on the market and seeking out any properties you’d like to buy. Definitely don’t put your search on hold! If prices rise again post-Brexit – as is currently expected – now could be a golden hour for deal-making. Those making the move to a larger property have an opportunity to take advantage of the current market, being able to stretch into a higher price bracket that would have been out of reach a couple of years ago.
First time buyers – what does this mean for you?
The same applies for first timer buyer as it does all buyers (as mentioned above) with an added dimension: mortgages. Because the market is cold, fewer applicants are approaching mortgage lenders for a mortgage so mortgage lenders are lending less. A reduction in property sales and movement in the market means that fewer people are applying for mortgages. The upshot of this is that whereas banks and lenders may avoid lending to first-time-buyers (preferring to lend to people proven as reliable borrowers) they’re now more willing to consider first time mortgage applicants.
Why is it bad for banks and lenders if they’re not lending?
Okay, so mortgage lenders are having to proactively look for applicants to lend to. But surely they don’t want to simply lend to anyone willing to take up a mortgage? They still need to know their borrowers are reliable – right? Absolutely! But remember that lending is how banks and mortgage lenders make money (this is where the economics lesson comes in).
While their assets are simply sitting in internal accounts, they’re not gaining interest or increasing in value. Once lent (or invested), however, assets begin to make the company a profit (provided all lent money is paid back and no economic crashes occur). Banks and lenders have a set allowance/budget as to how much they lend each year. These budgets are set for a reason – they don’t want to be lending above or below these margins. Hence, not using your full lending ‘allowance’ can be viewed in a similar way as not making your sales targets.
Competitive mortgage rates
This could also mean better mortgage rates for you. In a buyer’s market, lenders may alter their rates in order to compete with competitive lenders in order to gain new clients and applicants. Think about your mortgage options, what’s most affordable for you and what kind of mortgage you will be looking for in a couple of years?
Many people will opt for fixed rate mortgages to provide themselves with security as we move into a period of uncertainty. But don’t just jump into a fixed rate without considering the alternatives – there are plenty of flexible products that would leave your options to remortgage open if rates start to change after Brexit. Brexit is still an unknown, and while a professional mortgage adviser won’t have all the answers, they will be able to explain your mortgage options to help you navigate this period of uncertainty.
What about the deposit? It can still be difficult for first-time buyers to raise a deposit and this may be where you need to seek financial help for example from BOMAD.
Property prices after Brexit
The political situation may be uncertain but it’s important that buyers and homeowners don’t panic or make any rash decisions. As mentioned above, recent price drops in some regions mean that it’s becoming more of a buyers’ market, so you might be able to get a good deal. But we don’t know what will happen to prices after Brexit yet. What you don’t want to do as a first timer buyer is get yourself into a mortgage agreement which however affordable it may be right now, could leave you at a loss in the long-term. That said, buying a property should generally be regarded as a long-term investment, therefore even if there is a short-term price drop, house prices will probably stabilise in the future. If this does occur, you can wait until prices increase again before selling up.
Any properties that meet your criteria as an ideal home may sell for less than they would have two years ago. If you’re not in a hurry – put in an offer within your budget and see what happens. Don’t do anything rash, but look out for good deals. Whatever you do, don’t stop looking.