Top tips on how to weather the mortgage markets and plan ahead ..
I’m not sure if you have noticed, but it is looking pretty rough out there.. and also, in some places, there are very positive signs.
There are a few structural problems facing the UK and some quarters are suggesting that property prices are in for a hard time in 2021 as a result. Savills and Knight Frank are predicting 0% growth, the Daily Mail is short everything, and a few people have even gloomier predictions.
I, however, think that the outlook for the UK is pretty positive. As soon as we find a way to manage Covid and a solution to Brexit is in place, I think there could be a real surge in the economy, and the fortunes of UK PLC.
Of course, this is all very area and property type-specific, the leafy properties in the commuter belt around London and mega properties with a garden in prime central London faring perhaps much better than anything simultaneously high in value and high-rise, for example.
So – we have two tensions in the mortgage market right now. One, how can I organise my mortgages to be as protected as possible for the next few years, and, two, how can I be as prepared as possible to pick up any opportunities which come up over the next few years?
Here are some of my tips for both sides of the coin.
Fix Long & Low
In 2007, when the lending market dried up, it was tough to re-mortgage unless you were super-prime and were borrowing at a low loan to value (or knew me). Our advice – if you have a non-standard income structure or are at a high loan-to-value, and are planning to keep a mortgaged property for the long haul, fix now and for as long as you can – preferably over five years. You only ever get caught skinny dipping when the tide goes out – preparing your finances and making sure you are not two-footed when the market turns is vital. There are some amazingly low five year fixed rates in the market and some even better ten-year mortgages (if you can find them) and I can’t see how rates for these mortgages get much lower.
Borrow on interest–only if you understand and can mitigate the risks
The best way to take a mortgage is on a repayment basis – every payment you make reduces the debt which means the amount of interest you are paying drops over the term, costing you less in the long run.
However, if you are a grown-up, understand the risks, think about the future and have other assets of liquidity events planned, interest-only is possibly a better approach. An interest-only mortgage keeps your monthly payments low each month (you only pay interest, you don’t make any repayments to the outstanding mortgage).
Cashflow is often one of the primary reasons people get in trouble – not having enough income to meet your short term liabilities can be fatal in personal and business. So – if you think your short term income may be stressed, speak to your lender and agree to an interest-only payment plan until things return.
Create access to liquidity
Make the most of a good crisis. If things turn sour, there will be opportunities in the market. If things turn out ok, there will be strong reasons to invest. To make the most of either scenario, having fast access to funds to allow fast decisive moving and strong negotiation stances are vital.
In ’07, the property market dived significantly. One trend we saw during this period was people creating liquidity to allow them to react when the bottom of the market was reached, or as great opportunities presented themselves.
For example, making a plan to refinance properties to release equity, creating offset or flexible facilities, securing credit lines against liquid assets and securities and so will give you fast access to a hunt fund to allow you to react.
Of course, you don’t want to create a pile of cash and have nowhere to invest it (especially if we get negative interest rates), so planning and creating efficient structures here is critical. There are some excellent products out there for this very purpose.
Prepare your position and pre-plan for potential tax changes
I think we are all expecting some significant tax changes in the spring budget- income tax, CGT, planning your affairs now with expert guidance is substantial, for example:
- If you are self-employed, your tax return submitted at the end of 2021 will be a driving factor in how much you can borrow for the rest of that year – and maybe the lowest income tax rate we will see for a while.
- Selling low yielding properties now, and taking the current CGT rate may be advantageous.
Speaking to your tax adviser/accountant and lawyers now may open up some ideas which can prepare you for what is to come.
In any event, Enness takes a long term view, and we are more than happy to discuss anything at all with you now which will help you plan for the future and then work with you over any period to deliver what you need.
Contributing Writer: Islay Robinson CEO Enness Global Mortgages