Credit Crunch Update - Where have all the 85% mortgages gone?
Hey guys,
Well what an exciting time to be involved in property. I can honestly say that I have never been in a property market that changes so often. Mortgages are being pulled and replaced twice a week it seems. One of the things I love about property is it moves so slowly, so it's a change to have so much going on.
You've probably read the stuff in the newspapers, on the radio and in the financial magazines. An important thing throughout this entire time is not too lose your head and perhaps most importantly, to take all the media output with a massive (and I do mean massive) grain of salt.
Importantly the fundamentals underlying the property market are still strong. In fact, I'd argue that they are stronger now, after 6 months of the credit crunch, than they were before it began. But in any case, this article is not about the robust nature of the UK property market and economy.
This issue that I wanted to introduce was the change in mortgage criteria over the past 2 months.
The primary change that affects investors is the change in the interest rate being paid on mortgages. This will affect anyone remortgaging or taking out a new mortgage. You won't be able to borrow the full 85% and 90% any longer. In fact, they were out a long time ago.
Why an 85% mortgage will become impossible to achieve.
You see, a buy to let mortgage is based on the lower of either 85% of the value or a rental calculation such as 125% at a certain rate. So this means that even if you were allowed to borrow 85%, you couldn't because the rental calculations wouldn't allow it.
Because of this, I'm forecasting that buy to let mortgages will work at around the 80% mark depending on the property. I think the market will sit at the 80% mark and therefore we will be adjusting all our cash flows and marketing material to reflect the changes in the current market.
The downside of this means that you will need to put an extra 5% into each property in the form of a deposit. (This however means that you can remortgage earlier on and you will have a greater safety margin in each property.)
The upside is that developers are being a lot more reasonable in their pricing. Surveyors are being a lot more realistic with their valuations, and best of all, the market is getting harder and therefore the "slippery sharks" of our industry are finding it a lot harder to sell their "arse end" property at ridiculous prices.
Now, one of the risks is that mortgages could go to 75% loan to value and this is where most banks are happy with at the moment.
It's funny, but over the past 5 and half years in the UK market I have only ever had the choice of a few lenders on each property because I wanted an 85% mortgage. These lenders would usually lend for a while and then price themselves out of the market. This was always about the same time that someone else would price themselves into the market and I would start using them instead. So even though the available mortgages have dropped by half this hasn't stopped us from selling and lending normally.
So, I guess what I'm saying is to expect further changes in the financial markets, more scare mongering and plenty of tosses and turns in the market over the next 3-6 months.
If you have concerns about where the market is heading then give my team a call on 0207 812 1255 and they'll be happy to give you a current run down on the state of play. We are having daily market update meetings to keep the team 100% up-to-date.
Live with passion,
Brett Wood
PS. Now at YPC we normally guarantee that you will receive an 85% mortgage but obviously with the present market this is impossible to do. Although we will be offering the highest mortgage we can get which will mean something between 80% and 85% loan to value.