Mortgage Lending and Premium Property in 2011
Many of frustrated debates about the British banking system by would-be home owners or property investors are often about unfair treatment when it comes to receiving mortgage finance. Whether it’s their first step into the property world or if they want to add to a portfolio, consumers can feel aggrieved at the lack of lending the support they receive for property developments. They feel that the bail out of the banks lead to a hefty tax bill and public service cuts for the average tax payer and that now, they should be at least entitled to a home loan.
However it is not as clear cut as that, and often the terms of the Special Liquidity Scheme are not explained in any clarity. Essentially, the Bank of England has put this scheme in place to ensure that the banks repay their loans and the terms certainly aren’t soft. This means that the banks are restricted in how much they can lend, hence a low lending situation has occurred in the UK. This will continue at least until January 2012 until the repayments are completed.
The Council of Mortgage Lenders has made it clear the lending pattern of 2010 will continue in 2011. The second half of the year saw the lowest levels in a decade and despite a jump in November, a significant improvement is not predicted in 2011. Furthermore, UK borrowers have increased their repayments on unsecured debt in anticipation of interest rates rising. Although credit is harder to obtain, it will support improved economic stability in the future.
For those investors who don’t need a high value mortgage, they are choosing to acquire premium property developments that protect underlying capital values, which is indeed a relevant issue for the next few years of ‘austerity’. One of the property sectors that offer the best value are London Waterside properties. The recent study by Hamptons International (a leading UK property company) revealed that properties with a waterside view were worth between 13 and 16 percent more on average in comparison with other units on the same floor. Translated into weekly rents for landlord investors, this means an extra £50 per week for a one bedroom property and £130 for a three bedroom property. It is no surprise then, that over the last ten years, thousands of new residential units have been built on the banks of the Thames. Many strive to retain original warehouse features and maximise the views with floor to ceiling windows.
These premium properties come at a price and only those not affected by the current mortgage lending conditions will be able to purchase and even when they do, the high asking prices can offset the profit in rental income. However, savvy investors know, especially in times of economic instability that it is wiser to take a lower yield in order to obtain the most premium properties and thus protect their capital value in the long term.