“In the long term, the government doesn’t want to be in the mortgage market, but it wants to encourage housebuilding and the majority of lenders have a lower maximum LTV [loan-to-value] for new build properties than they do for other properties.
“The reason for lenders’ reluctance to do 95 per cent on new builds is because they’ve been caught out in the past. So things are beginning to improve, but the availability of mortgages for people with a 5 per cent deposit on new build is still much more limited than it really needs to be if you take out the Help to Buy equity share scheme.”
Lower mortgage rates have also given further impetus to the equity release market. According to the Equity Release Council’s spring report, the sector saw growth “surpass the £2bn mark for the first time with more than 27,500 new plans agreed” in 2016 – the highest level in over a decade.
The first quarter of 2017 saw another acceleration of growth helped by the fact that many may be releasing equity to fund long-term care or their children’s attempts to purchase a property. An easing off of house price growth is unlikely to derail this trend.
“[Equity release rates are] never going to be as cheap as mortgages, but they’re coming down to a more affordable figure. It’s less scary because at 7 per cent your debt will double every 10 years. At 4 per cent, it’s a lot lower compound interest,” says Nick Green, mortgage broker at Coventry-based Alternative Estates and Financial Services.
BTL concerns
For now, though, forecasts suggest a gradual cooling of the market rather than outright price falls. That should not be too difficult to endure even for clients whose wealth is tied up in property.
But some sectors will fare better than others, and there appears to be more pain on the horizon for buy-to-let.
Changes to mortgage tax relief are being phased in between April 2017 and April 2020, by which point landlords will no longer be able to claim any relief on their mortgage interest payments. A number of landlords may find themselves pushed into a higher tax band because of the new calculations.
This has lead to some investing their properties in a limited company structure, as these, as well as non-UK resident companies and landlords of furnished holiday lettings, remain exempt from the new rules.
Mr Green highlights the fact that in response to the new tax rules, others are simply seeking to “sell off [properties] because the payments are too high”.
He adds: “They’re not covering the rent, so that’s where they’re being hit. More people are cashing in on the high values now, rather than affordability, so if they can swap on to another deal then they’re happy. If they can’t swap on to another deal, that’s probably why they’re selling up”.
