The Current State of Lending to UK Homebuyers Options and Constraints
Difficulty in finding loans has plagued would-be homebuyers since the 2008 financial crisis, but things have improved. Interest rates may stay low through 2015.
For homebuyers in the UK, it’s a combined state of feast and famine.
How so? A combination of low interest rates and Government-sponsored home ownership programmes make it a good time for working people to buy a home. The problem is the short supply of homes relative to demand: this translates into rapid home-price inflation – by as much as double digits in both London and other high-demand cities in England, Wales, Scotland and Northern Ireland.
The Bank of England determined in its May 2015 meeting to keep interest rates at 0.50%, in response to very slow growth in the size of the economy (0.3% in the first quarter of 2015). This was slower than the last quarter of 2014, which triggers concern that the economic recovery is slowing down. The earliest that economists predict a rate increase would occur would be the first quarter 2016.
Those planning to purchase a home should take note. And perhaps, given the potential hike in the next year, they should act soon if they can afford it.
But the bigger problems haunting those in the market to buy are the prices of the homes themselves. Double digit increases might happen in the remainder of 2015 due to supply shortages, greater confidence following the May 2015 election, and foreign buyers who snap-up properties without actually living in them (treating built homes as an asset class). Anyone wanting to jump on the property ladder is seeing that first step rise up higher and higher.
Investors in development – particularly on the homebuilding side,What all find encouraging are the various Government schemes to support homebuyers, the essential purchasers of new homes in the pipeline. In brief, those programs are:
Help to Buy: equity loans – Here, the government lends as much as 20% of the value of new build homes
Help to Buy: mortgage guarantees – These will be available through at least 2016, enabling lenders to offer mortgages for 80% to 95% of the home value.
Starter Home initiative – Aimed at stimulating the construction of 100,000 new homes on previously used (“brownfield”) land, it will forgive section 106 obligations, which on average add £15,000 to the costs of new homes. More than 31,000 people had already registered for the scheme as of March 2015.
Right to Buy – The programme to enable council house tenants to buy with discounts of £75,000-£100,000 off the market value of a home.
Some will argue the problem is less about financing than about land being released for building. With financing increasingly available – and a robust employment rate – that is proving more viable than in the past decade.
Investors in land effectively deliver a civic benefit as they seek to maximise return on their own assets. But all investments should be considered with the guidance of an independent financial advisor.