What to do now interest rates have fallen from 0.5% to 0.25%!

Well here we go… new historic lows for interest rates. Wow! It was not long ago (for the past three years, if my memory serves me right) we were warning people of what to do to prepare for interest rate rises and the implications on your household costs. Now, of course, for those of you on tracker rates, the likelihood is that your mortgage is going to fall.

How much by? Well around £20.83 for every £100,000 you have borrowed if you are on an interest-only mortgage.

That might not sound much, but it adds up to nearly £250 a year. And that can help pay off some of your bills, your mortgage or even just mean a bit of an extra spending spree – especially as a fall in interest rates means there doesn’t seem much point popping it into a savings account!

So what now for the property market?


Well we are truly in uncertain times. Here are some of the game changes our property market has seen, is experiencing and can expect over the next 12 months:

1. For areas such as London – which have grown by around 60% since the height of the market prior to the crash – rates of growth are now slowing.
2. Areas which have seen around 5% year-on-year growth may now slow rather than see the double-digit growth London and the South has benefited from.
3. The lending cap at 4.5x income may start to bite in areas such as London, Cambridge, Oxford and Bristol.
4. Potential of lower fixed mortgage rates and even long-term mortgage rates of below 3% (for more, see Mortgage Introducer).
5. Buy-to-let investment costs have increased dramatically and are set to increase further, potentially making currently profitable rental properties turn to loss making when the mortgage interest relief changes start to come into effect from next year.

Oh, and the Brexit vote seems to indicate at the moment that the economy might slow down, inflation will rise (ie, the cost of living will go up) and the fall in sterling has made property across the UK substantially cheaper than it was to international investors!

So we are genuinely in a new phase with different parameters at play in the property market and it would be a very brave person who would predict what happens next.

The biggest problem is that, to be honest, it’s very difficult to see any national trends any more; trends are increasingly localised, with some areas seeing great growth in one and two-bed flats, other areas seeing these in over supply and an under supply of houses to rent and to buy.

What should you do now?

Homeowners

If you are already a homeowner with no intention of moving, don’t worry too much! If you have a mortgage, double check with your lender if the saving will be passed onto you. If you haven’t reviewed your financial objectives and mortgage over the last six-12 months, do so; you could save an absolute fortune and secure some amazing long-term low rates (not that we know what is going to happen to rates in the future!).

First-time buyers

If you are a first-time buyer, it’s a bit of a tricky decision whether to buy now or wait. If you buy now and prices fall, you may feel miffed unless they rise again. But, buying now many mean you:

1. Secure great value mortgage rates;
2. May save money over the next few years if it’s cheaper for you to buy rather than rent. Not sure if it’s cheaper to rent or buy? Read our checklist here;
   
3. Are happier knowing you have a foot on the ladder and can settle for the next five or more years.

And you may even secure a property at a lower price than it will cost in a few months/years if the economy isn’t affected that much and prices start rising again.

First-time buyer? Download our essential FREE eBook for first-time buyers, which tells you everything you need to know.

Investors

For investors, it’s a tricky time. The government is clearly backing large property investors such as developers and insurance companies/large institutions building and renting substantial numbers of properties. However it’s doing its level best to curb individual investors with increased taxation:

1. Higher 3% stamp duty on all purchases over £40,000 (applied to the full value of the property if sold for more than £40,000);
2. Substantially higher Capital Gains Tax on earnings than on financial investments (28% vs 20% for higher rate tax payers and 18% vs 10% for lower rate tax payers);
3. Mortgage interest relief changes for those who end up being classed as higher tax rate payers (this change can mean lower rate tax payers end up being higher rate tax payers due to the change in accounting) pushing some into negative cash flow once tax bills arrive/are paid.

So basically, if you are investing in property and haven’t done so already, you seriously need a full financial review of your individual circumstances. Without this, you may end up not earning anything like what you expected from property investment, especially if prices don’t perform as well over the coming years.

Read our Financing a Buy-to-Let checklist

Not sure what to do? Worried about who to turn to for advice? Then do get in touch, we don’t sell you anything, we just give good, independent help and advice on who to can help you, based on your individual circumstances. And, we don’t take commission from anyone, so it’s up to you who you do/don’t work with!