Author Richard T Lishman, Managing Director of money4dentists, a firm of specialist Independent Financial Advisers who help dentists across the UK manage their money and achieve their financial and lifestyle goals.
Is now the time to buy?
Here, Richard Lishman, Managing Director of the 4dentists group reflects on whether now is a good time to buy, and what to consider when taking the step into property ownership.
When the results of the EU referendum were announced back in 2016, the Treasury predicted that house prices would drop by as much as 18 per cent over the subsequent two years. Now that article 50 has been triggered and the dust has settled (well, sort of) predictions have shifted to a less radical outcome. Instead, it is thought that Brexit will actually have little effect on house prices in the majority of the UK, though some areas are likely to be hit worse than others.
Demand remains high, after all, and as there is still the issue of a housing shortage, it is quite likely that the value of property will begin to rise again at a steady pace once the state of unease begins to fade over the UK's future. As for how long it will take to get to this point exactly, that's anyone's guess – because, as proven this year, circumstances can change very quickly.
For now at least, we know that house prices fell across the UK by 0.4 per cent in April 2017.i Though shortly after sources indicate that average house prices stabilised, which if nothing else shows that there is still a wave of uncertainty and instability within the market.ii Despite this element of unpredictability, a radical outcome still seems highly unlikely at this point, particularly as wage growth remains relatively unchanged and mortgage regulations on how much banks can lend are as strict as ever. We must also remember that the base rate continues to stand at 0.25 per cent (having changed in August 2016 to counteract the initial effects of Brexit and help restore the struggling UK economy).
For all of these reasons and more (mortgage rates are also very low at the moment) now is as good a time as any to buy, both for first time buyers looking to get on the property ladder and existing home owners looking to add another property to their portfolio. If you're looking to make the move, there are a number of aspects you'll need to consider.
For the purchase of a first home there are several government schemes available to help you towards your goal. One option is the Help to Buy: ISA, which is available to each first time buyer, not each household, and pays a bonus of £50 for every £200 you save – providing you've saved at least £1,600. There's also the Help to Buy: Equity Loan, where the government lends up to 20 per cent of the cost of a newly built home so that you only need to pay a 5 per cent deposit. For London, where property prices are notoriously higher, the upper loan limit is 40 per cent, so if you're looking to buy within one of the London boroughs, your dream of buying a new build can be realised (as long as the price tag isn't over £600,000).
You'd also need to consider which type of mortgage to go for if you were successful in making an offer. A popular option is the repayment mortgage, which is where the lendee is required to make a monthly repayment to the lender repaying some of the capital alongside interest. The main advantages of this are that it limits risk, is easy to follow the repayment plan and, as long as you keep up the repayments, your mortgage will be repaid at the end of the term. Alternatively, you could opt for an interest-only mortgage, where you would repay the interest on the loan each month and then the principal amount at the end of the mortgage term. You could even choose a mix and match mortgage if you wanted to, just be sure to weigh up all of your options before settling on a decision.
If you're looking to purchase a second home, there are a few additional details that you will need to give thought to. The first is Stamp Duty Land Tax (SDLT), which, thanks to reforms that came into action in 2016, means that you'll be required to pay an extra 3 per cent on top of the normal SDLT rates for the additional property.
Where there are plans to have a lodger, there is a Rent a Room relief scheme available that provides tax exemption on the first £7,500 of your rental income. Or, if you are contemplating purchasing a second property to rent out, you'll need to consider Income Tax as well as the implications on National Insurance.
All in all, there's a lot to take in – both in regard to the current state of the market and from an acquisitions perspective. To get the best result for you, be sure to do your research and, where possible, seek professional guidance from a specialist dental company.
i. The Guardian: 'UK house prices fall again in April as buyers feel the pinch'. Published 28 April 2017. Accessed online 18 July 2017 at https://www.theguardian.com/money/2017/apr/28/uk-house-prices-april-brexit-inflation-wages-nationwide
ii. UK House Price index. May 2017. Accessed online 18th July 2017 at http://landregistry.data.gov.uk/app/ukhpi