A couple of weeks ago, I mentioned in this blog about how
the Bank of England has recently cut interest rates to a historic low of 0.25% Therefore,
if you are one of the 10,836 homeowners in Hampstead, who own your own home with a mortgage, then you need to consider your options
and start to budget if you have a Tracker or variable rate loan. However, if
you are a landlord, who owns one of the 21,066 rental properties in the area,
whilst your exposure to interest rate cuts most certainly something you should
be aware of, that may be helpful if re financing all or part of your portfolio.
Since the spring of 2009, British interest rates were at
a record low of 0.5% since they were first introduced some 400 years ago. Just
when the mood music suggested that a rise was imminent, Brexit dominated the
political and economic landscape over the past two quarters and interest rates
were left aside- for the time being....
That said, Mark Carney, The Governor of
The Bank of England, made his announcement to cut rates to just 0.25%, on
August 4th. Nevertheless, as much as most of us in Hampstead would love
to pull the shutters down and stick two fingers up to the world, we have to
recognise we are part of a global economy and global economic worries still
exist
Those Hampstead homeowners/landlords, who do
have a mortgage, are the winners here; if your
mortgage interest rate tracks the base rate, you could be laughing. Your
monthly mortgage repayments will likely drop to reflect a lower rate, though
some lenders may have clauses that exempt them from this.
For the average Hampstead homeowner, it means more money in their
pocket every month, or to pay other bills. For buy-to-let investors, it means a
better yield. For years, the Hampstead property market has suffered from a
chronic shortage of supply, therefore demand is set to remain strong over the
long term. The strong demand and interest rate cut are great for Hampstead investors.
While interest rates have gone down, yields have remained the same, meaning
that the buy-to-let profit margin has effectively gone up overnight.
Speak to a qualified mortgage arranger, there are lots of
them in Hampstead and seriously consider fixing your mortgage rate now. You didn’t buy your Hampstead buy to let
property for it to become a millstone around your neck. It’s all about
mitigating your costs and maximising your income to make your Hampstead buy to
let property the investment you want it to be.
However, on the other side of the coin, two in three
landlords who have bought property since 2007 have done so without a mortgage.
For them, the expected rise in interest rates (pre- Brexit) would have been a
good thing. Let me give you some background first, and then I’ll explain why. Hampstead
landlords have see their return on investment for their Hampstead buy to let property
over the last couple of years, perform very well indeed with Hampstead property
values rising by 85% since the Spring of 2009. However, when rates do rise, whilst
more expensive mortgage rates will ease the demand for borrowing, on the other
hand, it may stunt house price growth, making the property market more
competitive... and therefore, we should see the return of some bargain property
buys in Hampstead!
The Big
Picture
What shall , in my humble
opinion, remain constant are affordability concerns , a cap of 4.5 on the
loan-to-income ratio for the bulk of mortgage lending, Brexit uncertainty, and
a weaker economic backdrop should all soften the Hampstead property market over
the next couple of years.
Mortgage credit has been cheap
for some years and probably even cheaper now, not to mention the housing supply
shortage. Employment figures released from the Office of National Statistics
(ONS) remain pretty strong, despite vulnerability to an economic downturn.
These fundamental factors mean little has changed from a 'big picture' perspective
of the Hampstead property market and make a drastic correction or crash
unlikely, though not impossible.
Back in January, my forecast for the Hampstead property market
was that house prices would rise by 3-3.5% in 2016 and same in 2017. The rate
cut is not likely to give a fillip to the local market, though it will go some
way to underpin it.
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
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