by Paresh Raja, CEO of Market Financial Solutions
Despite the political uncertainty surrounding Brexit, the UK’s property market has proven resilient. In fact, according to the latest data and analysis from Halifax, UK house prices are rising as a result of growing market demand, hitting a new record high of £230,280 in July 2018. The same data also revealed that house prices in the three months leading into July increased by 3.3% against the same period a year earlier.
While it is difficult to predict what Brexit will ultimately mean for the property market, consistent house price growth in the period following the EU referendum is an encouraging sign. Given strong investor demand for commercial and residential real estate, bricks and mortar seems to remain a popular investment option.
In the days following the EU referendum, there were real concerns that prospective homebuyers and investors would be dissuaded from property investment in the UK. This claimed soon proved to be false. In fact, a study commissioned by Market Financial Solutions (MFS) at the beginning of the year showed that over half (53%) of investors are planning to direct their capital into traditional asset classes such as property in 2018. Moreover, 63% regard property as a safe and secure asset in the current market.
Looking to March 2019, investors need to ensure they have a financial strategy in place so that they are adequately positioned to pursue their investment goals. This requires an understanding of how Brexit is likely to affect the property market based on current trends and recent economic announcements.
Take, for instance, the recent interest rate hike from 0.5% to 0.75% by the Bank of England in early August. Individuals and families struggling to pay off variable or tracker mortgages may now face added financial strain as a result of this change. Monthly repayments will rise, and banks could exercise more caution when it comes to approving mortgage applications. With mainstream lenders having already imposed stringent lending measuring since the financial crisis ten years ago, this added pressure can make it even tougher for people to access finance from high street lenders.
The rise of alternative finance
Stringent lending measures and a competitive climate have fostered the rise of alternative finance. The demand for quick and accessible funding – which has become increasingly difficult to secure from traditional banks in recent years – has encouraged people to explore other options available to them.
Bridging loans, for example, have given people the flexibility needed to make quick decisions and secure a property without the added delay and stress of cumbersome regulations. In a highly competitive market, flexibility is key when it comes to taking advantage of real estate opportunities that may suddenly present themselves.
A failure to obtain funding in good time can risk prospective homebuyers losing out on a property. MFS recently revealed that 33% of those who have experienced a failed property deal in the last ten years have encountered problems due to delays from the bank providing their mortgage. A further 16% of buyers said that their purchase fell through because, despite having a mortgage in principle, the lender later rescinded the agreement. Making sure that funding is available and accessible and available can therefore be crucial to securing a property.
The idea of alternative finance is especially convenient for those who need a temporary solution to a shortage of funding – like those stuck in a property chain, unable to purchase a house until their current one is sold. With high demand for property, having access to quick and easy finance can be a great advantage for those seeking to complete on a purchase and reduce the risk of a deal falling through.
Preparing for the future
Despite speculation about the changes the UK’s eventual departure from the EU will bring, demand for real estate has remained consistently high – with many looking to invest in bricks and mortar over the coming months. The prospect of higher interest rates and more stringent lending measures post-Brexit, however, may deter people from taking out mortgage loans to fund a property acquisition.
Alternative finance will thus continue to prove valuable to supporting the continued growth of the property market. Instruments like bridging loans ensure people can remain confident that they will be able to access the finance they need to take advantage of new real estate opportunities and reduce the risk of unnecessary delays and obstacles from mainstream lenders.