Tuesday, 8 August 2017

Is the Edinburgh property market being distorted by mortgage rates?

Property has never been cheaper to buy…IF you could save the ever-increasing deposit monies AND get a mortgage.  This is what I told a potential landlord from Barnton the other day when he phoned me for a chat about a buy to let property he was thinking about buying.

This was based on the current record low interest rates leading to lower and lower mortgage rates. Santander have just launched a two year fixed rate mortgage at 0.99%!!!....although you’ll need a 40% deposit to actually get that rate.

Buy to let rates have been somewhat slower to drop as I suspect the government had been leaning on banks to ease the burden primarily to homeowners and first-time buyers rather than ‘well-off’ landlords.

Even so, there are now buy-to-let mortgages (at 60% loan-to-value) that come with a rate of 1.49%; fixed for two years. If you want a little more security, Barclays have just launched a TEN year fixed rate buy-to-let mortgage at 2.99%!

I remember in 2010 when the base rate had been at its, as of then, 0.5% low for 12 months and buy-to-let rates had trickled down from around 8% to 6% that I thought “right, time to lock-in for five years at 5.99%”…..whoops!

During the ‘credit crunch’ it was only the sharp drop in the bank base rate that saved many homeowners and landlords - particularly those buying shiny new-build apartments in far flung places. Their good fortune to be on a ‘base rate tracker mortgage' meant their monthly payments collapsed, saving them from certain financial Armageddon.

This is clear to see from the number of repossessions over the past decade. Repossessed property was big news in 2007-2009 as the TV was awash with sad news stories of families being turfed out of their home. This peaked in 2009 with 48,900 homes being repossessed, whilst in 2016 there were ‘only’ 7,700 who struggled to contend with their mortgage payments in the UK.

And this gets me on to my point…mortgage rates absolutely have distorted both Edinburgh’s and the UK’s property market.

As the credit crunch hit, government had a choice - commit career suicide and let the excesses of the past wash us all away, or save those drowning in debt and kick the can down the road a little further.

Of course they took the latter course of action and house prices in Edinburgh are now 29% higher than their 2008 low.

And the simple reason this has happened is mortgage rates have dropped in a spectacular fashion. You may not have been able to afford the average property in Edinburgh in 2008 at £196,300 when rates were at 6% +, but how about now - when that same property costs £252,424…but rates are under 2%?

I believe mortgage rates are the number one factor that are affecting property prices in Edinburgh and the country. Do you think Governments will unwind this situation and revert to mass repossessions and the collection of their own P45s? I certainly don’t.

#edinburgh #property #buytolet #realestate #ownermanagedbusiness #retirement #retirementplanning

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