Hello and welcome to our property matters feature industry insights. On today's program we're going to focus on the world of finance and my guest today is Lucy Waters MD of Area Finance.
Lucy, welcome.
Hi Steven.
Um Lucy, I guess we better start with the current USA Middle East conflict and what's the effect on the financial markets at the moment?
Yeah, really sad times and and obviously um you know it's a another big market event which we could have really done without and the knock-on effect is uncertainty. So all of the goodwill that we've built up at the start of this year which has obviously fed into interest rates, swap rates and therefore what customers are
borrowing at has been undone really in the space of a couple of days. Um we saw swap rates bounce immediately after the event by about 25 basis points over a couple of days settled slightly. Um but in response to that we saw some of the big banks um announce that they're going to price upwards across residential and buy to let rates when we were sort of expecting it to go the other way. But that uncertainty in the market, rising oil and gas prices, it just creates a another layer of volatility which we thought we'd put behind us for the time being.
Um, you you mentioned oil and gas rates.
Um, I was listening to some commentators yesterday saying that the uh almost 100% increase in gas prices at the moment will take until July to really feed through to anything that matters to us as, you know, private individuals, shall we say? Um, but I think in the financial market, it's going to be a little bit more instant, isn't it?
Yeah. The the the financial market predicts what will happen. So the interest rates that consumers are paying are a forecast of where they think interest rates will go within a period of time. So you look at SWAT rates on a 1, two, three, four, five year basis. The ones that most banks are concerned with a two and five year because most borrowing is linked to two and five year. Um and that's really what drives the interest rates that people see. So whilst we're actually only back to sort
of pre Christmas levels, so that they've not, you know, they've not shot up past where they were at the back end of last year, but it's just like I say, we've undone some of that good work that we've seen early this year, which has fed into confidence and what have you. But hopefully it's a blip, Stephen.
Hopefully.
So what would you say to those people that have been sitting on their hands waiting for interest rates to fall?
Yeah, I say this all the time. I'm a bit of a broken record that you can only predict so far as to what's going to happen and and the market has been fairly clear that it believed there would be a few interest rate reductions this year. Um every year we've come into over the last few people have always said at the start of the year we're going to see four five interest ratecuts. We've been slower than what people have predicted. So therefore, anybody that's held off has probably not seen
the benefit when they finally come to do it and perhaps has lost opportunity in in that waiting phase. So it just shows you really that even when the direction of travel is considered to be fairly certain that it only takes an event and whilst it's unusual times, we've seen quite a few of these events happen of late. So perhaps less usual, unusual than normal. And I think no matter how much we try and stay out of it, it's going to affect us one way or another, isn't it? You know.
Okay. Um Lucy, the final thing that I just want to talk to you about, um with your knowledge of the development market, um the London development market is experiencing serious challenges. Do you want to just run through one or two of those because it's it's holding us up with new homes, isn't it?
It is. Yeah. So the ongoing gateway to issue, whilst anecdotally I think it's getting better, a lot of developers have shied away from constructing towers, high-rise blocks of flats and and actually even if you take Gateway 2 to one side, the resale of those homes because of the pressure on affordability from interest rates and the number of buyers in the market for those homes has drastically reduced. and therefore lots of developers have been sitting on unsold stock u which has obviously had a knock-on effect to valuations which impacts refinance if developers decide to hold on to stock and rent it out. So there actually is not much of an injection of large schemes of flats coming into London versus what there has been in previous years because developers have got too much red tape and uncertainty about resales and a buying resistance due in part to high service charges and high ground rents.
So yeah, there we are.
Okay, Lucy. Um, thank you very much. That's all we've got time for today. I'm Steven Golpin and thanks to our guest Lucy Waters, MD of Area Finance. Thank you for watching our Property Matters feature, Industry Insights, and I look forward to seeing you again next time.
Hello and welcome to Property Matters.
I'm Steven Galpin and today we're going to be looking at the state of the property finance market and to help us with this is Lucy Waters, MD of Area Finance. Welcome Lucy.
Hi Steven. Good to have you back in the new year. Yeah, thanks for having me.
Good. Well, I only got good news for us and not bad news. That's all I'm talking about today. Now, um UK house prices soften towards the end of 2025 um with a quoted 6% fall in uh 0.6% fall in in in in December. Um on calculations it looks like that the uh UK average property price is around 290,000.
Do do you go with that?
Yeah, I think the last Halifax data came out 297 there or thereabouts for December. Um, so actually the the sort of overall picture isn't too gloomy in terms of house prices, but there's obviously some regional differences there with London and the Southeast suffering somewhat. Yes. Where obviously I'm I'm very nervous about taking a cross-country view on on these things. I remember um sort sort of back in CO there was a a a sort of um rush to buy properties in the country with more garden space because people restricted to home and all the rest of it. And we got all sorts of stats coming out sort of saying oh well country homes they they they've had a 400% increase in sales numbers this month. and you'd think that's good. But actually what it meant is they sold four properties instead of one, you know, so it wasn't that meaningful. And I'm a although I get criticized sometimes for being a bit London centric, I do believe that London sets the pace and it ripples out countrywide. Now I don't know whether that applies to the finance market, does it?
I think yeah, look, London is it's always going to be a hub and I think in terms of people making money in property, investing in property, London has always been a really safe place or perceived to be a really safe place to park money. Um, obviously with average property prices being considerably higher, yields have always struggled a little bit more in any case because your yields are lower and and therefore when it comes to investment that drives lower debt and and that couldn't be truer at the moment with obviously interest rates having risen significantly over the last few years and affordability pressures on those mortgages actually borrowing and and investing especially in Buy to let assets in London is a lot harder than it used to be. And then obviously from a home homeowner perspective, you have the affordability pressures for people to be able to come up with the deposit and afford the monthly repayments and and pass the lenders affordability test. So I think London has whilst you see obviously higher wages and perhaps better affordability than you might see in regional areas, it's it's definitely struggled the most. And I think it's pulled down property prices because you see much better results coming out of some of the northern regions.
And why why is that? Is it because commuting costs are so big now or?
Um I think that the whole way that people live and work has changed a little bit for one. So you get a lot more working from home, although that tide's definitely turned a bit and we've seen more of a move back to offices. I think there are still a lot of businesses that offer a degree of flexibility. So people who work in London don't necessarily have to live in London. Um, and I think that has had a contribution and we've talked about it actually on here before with the help to buy leaving the market that had a huge impact especially on your kind of two-bedroom flats in and around London. Um, that definitely caused a slowdown.
But this work from home business, I mean because it's perfectly obvious, but a lot of the big firms now, say here in Canary Wall, for instance, are saying,
"Hold on a minute. We're we're paying five or 10 million quid a year rent for this huge huge office block full of every facility that you can manage, and you want to sit at home and work at home. No thank you. You're going to come back to the office." Yeah. The tide's turned.
It has, isn't it? Yeah. And I I don't think that's a bad thing. I think it takes a really disciplined person to be able to get the best out of themselves working at home and I agree with that. I think productivity goes down.
You've only got to have something good on the telly and you you're gone, aren't you?
Yeah. I've always believed and and us as a business, we've always been off office office based entirely and we noticed that a lot of the banks and the lenders that we work with that moved to homework, we really noticed that service suffered as a result of that and I think that's true of all sectors. You've got no interaction with your work colleagues. So if you have ideas or you have problems, you've got nobody to discuss them with other than on a phone call, which is never the same. Yeah. You don't learn in the same way.
I mean, if you, you know, if you talk to young people, they'll only they'll only ever text. And if you say, "Well, why don't you talk to me?" They say, "Well, I did. I text you." You know, but it's not the same. You know, you can't see the tears. You can't see the smiles. You can't see the thought, can you? It's it's a difficult subject.
Okay. Just coming back to London and this sort of softening of prices. I mean I accept that in some regions of London um prices have dropped quite significantly and 25 to 30% in some cases prime post codes before.
Yeah. Um what what's causing that that softening of pricing?
I think it's I think there's a number of factors. So interest rates is an obvious one. Um, I think there's also tax regimes and the perception of the UK as somewhere to invest and and how we attract foreign investment and foreign buyers. I think that was a large part of the prime market. Um, the budget obviously last year was it was a real hindrance from the summer onwards at the very least because it was one of the most speculated budgets that I remember ever seeing. And I think that that with the speculation specifically around the higher value properties that put a lot of people off transacting in that market in the runup to the budget even though it was obviously nowhere near as bad as we anticipated.
Do do you think the government understood that that would be the reaction? It's a really good question, Stephen.
And it's hard to see how they wouldn't have understood that because speculation is never any good for a market, especially when it's negative speculation. So, it's hard to believe that they didn't see it, but perhaps they just needed more time to get their ducks in a row. I think the question I I I would like to ask of number 10 is that with that budget taking into account also the U-turns that have gone on since and and the some of the catastrophic choices that were made. Was it a budget
that was created by number 10 and our chancellor? So number 10 and number 11 working together or individually what whichever way they do it or or was it a budget that was inflicted on them by civil service advice?
Yeah, it's I mean it's an interesting thought, isn't it? Where did it come from?
Yeah, I think there was a lot of ideology in there and there was a lot of um it it was a very political and a very politically debated budget, wasn't it? there was this um sense of you we heard it a lot a lot in the news in the run up the border shoulders and and I think that that really spooked specifically the London and the prime markets um where you would expect the border shoulders to lie. I mean I I I I was listening to the news today and for instance the government are apparently considering um stopping or or restricting the London Freedom Pass.
Right.
Right. Now what does that give you? It gives you after the age of 66 free travel on the tubes, trains and and buses in and around London.
Okay. And apparently wi within hours of announcing this thought process, they had a petition with 3 million signatures on it. Wow.
And saying, "Look, you haven't thought this through because you get up to the age of 66." 60 to 66, you get a free Oyster card which isn't chargeable.
Then the freedom pass takes over as you head towards your 70s. And so what are you going to do? give it to people free for 60 to 66 and then cut them off and create poverty amongst pensioners or or or what and communication. The government always go on and say, you know, talk to your neighbour, travel, go and see your friends, go and do this.
And that seems just the kind of thing that again they're they're sort of ignoring and it just smacks to me as somebody in the Treasury saying, "Oh, listen, we could save three billion a year doing this and let's do it."
Yeah. I I I think the the thought process to you if certainly from the property side and from the earning side to try and tax our way out of it rather than to invest in growth is a continued frustration. And we certainly see that in the property market with a lot of our developer clients who feel frustrated at all of the red tape and the inability to be able to cut through that. And you know, every time that something positive is announced in order to try and achieve housing targets and what they may or may not do, something else comes in that creates another burden and it's the the whole lack of ability to be able to grow and and you know improve the economy rather than just pay tax.
I think my comment when they announced the 1.5 million homes by the end of this parliament was I think I said good luck.
Yeah. I mean, we're we're we're abysmal at hitting housing targets in any case, but I think that was but there's there's a fundamental flaw there anyway because even if you build this 1.5 million, whether it's to a housing association, whether it's to an individual client, whether it's to an investor, somebody's got to buy all these homes. Yeah.
And somebody like you has got to provide the finance for them to do that. And I'm not sure you can. Well, look, there's there's actually a real availability of mortgage products out there. And that's the funny thing. Mortgage lenders are there. They want to lend, but has to stack up. The affordability has to stack up. And at the moment where there's such a disconnect between house prices and affordability and deposit size and then your other costs such as stamp duty, it's really hard to make it work for people. And therefore the private rented sector is such a important part of our of our economy that actually on the other side we should be supporting that more and looking for ways to help to grow that side of the market if we can't encourage more home ownership.
But hold on it's a little bit like the electric car syndrome, isn't it? They want to encourage electric cars and what do they do? They cut the benefits. Yeah.
I I it's just barmy to me. And I mean as far as as far as housing is concerned um if you're a young person trying to get on the ladder um as I've said to you previously um here in Canary Wolf you know you've got one of the developments here starting one-bedroom flats at 880,000. Well I don't know how young person's ever going to afford that even if they're a couple.
No it's a lot of money is I mean with a combined income they're going they're going to need 150,000 quid aren't they? Yeah, I mean general rule of thumb and obviously this is this is not binary because there's a more complex affordability calculation that lenders apply by looking at people's committed outgoings and their sort of discretional expenditure. But as a general rule of thumb, you might say broadly four times an income would be required um for mortgage affordability.
Some lenders still have that in play and some of them work more on an affordability only. If you say four times income on average, you know, some would do slightly more and some would do slightly less. That just shows you really what you'd need to be earning in order to But you know, let's just wind the clock back a little bit. I mean, I think at the height of it all before we had the financial crash of 2008, 9 or 10, whichever whichever bit you think was the catalyst. Um, we looking sometimes six times earning, weren't we? And I have seen exceptional cases where it was eight times. Yeah, I was I was going to say I think six actually was probably at the lower end in many cases and and self certification too.
Yeah. And look, that didn't work either.
So I think that we needed to see a more prudent affordability regime come in and I think that's probably served us well because we often hear the term stress test and we've heard that a lot over the last number of years and and I think a lot of people that are borrowing see it as a hurdle to overcome but actually the stress came didn't it? We saw the stress in 2022 and 2023 when interest rates went through the roof and actually then people coming off of low fixed rates and their borrowing costs rising exponentially actually the stress test that lenders put in place to make sure that they could afford that rise stopped us from then falling off of a cliff when it came to affordability at the end. So there's a balance for sure, Stephen. And I'm not sure that we've quite got the balance right at the moment. And I think the interest rate, the new interest rate environment will probably prompt a little bit of a reset on that. And and that's happening. You know, there's regulatory review on affordability and lenders are looking at whether there should be certain stress tests and and how they how they look at things moving forward in a more normal or, you know, more usual interest rate environment. Well, let me just comment, you know, 100 years ago when I bought my first home, um I think I paid about n 9 and a half% and I was always taught at that time that if your if your borrowing was at a rate of under 10%, you were doing okay. You were lucky. Yeah.
Yeah. You know, and then of course it went up to 15% at one time, didn't it?
Um but just coming on to the subject of um mortgages for um and I don't mean this in a disrespectful way but for ordinary people and I say that people with normal jobs normal salary expectations no super growth in their career path just just as normal. M um do you think it's time that we looked at the way we provide house finance rather than this just either building society or bank provision? I mean I'm thinking in terms of mortgages that perhaps stay with the house rather than the person. Um longer period of payback maybe 50 years and that could be passed down through generations. I I just wonder whether it's time to have a rethink.
Yeah. Well, there are economies which have longer term fixed rates, which which is an interesting one because I think if somebody was going to buy somewhere and it felt like it was their forever home and they fixed their mortgage for 20 years or 25 years and they knew they knew that that was going to be the cost of their mortgage and that they had done their numbers on that appropriately and the bank had checked the affordability appropriately. Obviously things can change in the future but that is I suppose one way of looking atit whereas ours is a little bit more we fix for two years we fix for 5 years some people might take a variable rate we move a lot so our market doesn't really operate like that um a wholesale shakeup of mortgage finance I mean it's an interesting question but it's I suppose you become quite embedded don't you in in the way things work. And we always hear this word innovation and everyone's always talking about innovation, but it feels like innovation in the mortgage world for us has been really just tinkering around the edges as opposed to wholesale change.
Yes. You see, I I'm I'm thinking um I read some of um your notes on the subject and you are witnessing a return to a higher loan to value in terms of mortgages. you know, we're looking at 90 or 95% mortgages again now, which I suppose is a step towards the 100%, isn't it? I'm not sure what my view of 100% mortgage is. I don't think anybody takes a mortgage out with the idea of defaulting on it. So, I don't think it's quite as bad as some people would make out, but I do I do agree that it it could cause young people stress if there is a sudden change in the market, whether it be interest rates, house prices, negative equity, or any any of the taboo subjects that we get with property.
So, I don't know, but I do you think it's a good thing? Look, I think it serves a purpose and I think that there are still some soft costs and you have your stamp duty, your legal cost, valuation fees, moving costs, and you know, if it's a first-time buyer, they have to set the house up with furniture and, you know, there's there's costs
associated with it that would not seem insignificant to that individual when buying their first home.
um the problem that you have with it is some of the stress situations that you just listed. You then can end up in a situation where you create mortgage prisoners. So I think we would have to have the banks and building societies and non-bank lenders support to the market that they would continue to allow that loan to to run and if it reached expiry of say its initial fixed period, if it was a two-year or 5year fixed period that they would allow that to run without a reunderwite, which a lot of products transfers do allow for in the market because that you know they want the client retention anyway. So if somebody's
paying their mortgage they you know a customer that's already with them is valuable versus going out and having to acquire a new customer. So I think if
they can transition people on and you don't create a scenario where you have a mortgage prisoner that can't do anything. But if somebody then looks to
sell and their property value has fallen, that's when you can cause the problem because then it's a case of actually having to stump up the money.
But I think if I remember rightly, I've got a feeling it was the '9s where banks and building societies were ordered to be more more helpful to um shall we say delinquent borrowers, right?
And um I I thought that was always a very good idea rather than just leap for repossession. M we saw it in co as well,
didn't we?
Yeah. I mean, you know, people forget a bank don't want to repossess your property. The last thing they want is to have your property on their board.
It's also not very easy for a bank to repossess property. It takes time and you know it's it's it's not easy on anybody involved.
Okay, let's just um move on uh for the final minutes of our our show to buy to let.
Now the government has been quite difficult with what they call accidental landlords and I think what they mean is really the land the private landlord with one two three four properties now they've had a a bit of a holiday in terms of lending criteria have been specialist firms for buy to let who've been quite relaxed about the conditions they base the lending on rental income rather than the person's finances and I think that's a great thing specialist lending uh because you do get professionals looking at what you're asking for and I I I think that's absolutely great. But again, the government seemed to have jumped in and and put a stop on all of that by encouraging the you know institutions to take over by and I'm not sure the institutions are going to be very much better at it than anybody else. Why?
because I think the private landlord is very conscious of his asset, tries very hard to get a good tenant, and tries very hard to look after them. I'm not sure that some of these big corporates will, and in fact, I think they'll be quite um don't know what the word is, but um quite brutal when it comes to affordability and and and what they're going to get in terms of yield. How are you finding the financing for these sort of projects? Are are the big institutions taking up the finance and
and individuals being left behind or we're seeing a we're seeing a mix actually now I think when when it comes to the smaller landlords the sort of sub3 properties perhaps if you were to use that as a cut off um that market is really tough so unless somebody has ambitions to scale I think it's very difficult for people to transact in that market and make it work. So we've seen definitely a movement more towards higher yield assets which is probably part of the London sort of regional divide and people are much keener to seek better yields either by moving further a field or you know in areas that present stronger yields or by changing the asset class slightly to HMO co-living student accommodation and alternative types of assets and co-l living is something that we've actually seen quite a rise in in recent times. So you see that that that calling of the small private landlord is being converted into perhaps a restructuring of that kind of business I suppose then yeah to to some extent and I mean we still we still deal with a lot of landlords that have say three four properties upwards to you know many landlords that have 50 60 100 properties and and actually I think the difference there is it becomes a bit more systemized. They It tends to be somebody's full-time occupation as as opposed to something that they're doing alongside their main occupation. And that I think that makes a bit of a difference. And I think people I don't think that's a bad thing.
I don't think that's a bad thing either because people can give it more time and attention. Um and in terms of mortgage availability, there is a lot out there.
you know, there's there's debt is not difficult to come by, provided the numbers work and and I think that's the key really. It's about finding
appropriate yields to support the debt in today's interest rate environment.
Okay, Lucy, I'm going to say thank you very much for coming in today. It's been great to have you in the studio. So, that's Lucy Waters, MD of Area Finance.
Really big thank you and thank you for thank you for the information that you've provided. We're now going to go over to Will Stevenson, co-founder of
Fiber Pay for this month's industry insights on foreign [music] exchange.
Will, welcome to our industry insights property program and our monthly look at the world of currency exchange. What have you got to tell us this month?
Beginning on the uh property market, I think 2026 we've already seen a fantastic start to the year. um thatncertainty that we had from the bud the late budget last year now we know that the expectations of it causing a lot of havoc for this year we know now it seems business as usual um so that's of course fantastic terms of the currency exchange markets I think one big factor to look out for this year is interest rates um of course we've had an interest rate cut towards the end of last year um and it seems that the Bank of England is talking about further cuts throughout the year. Now, that technically should uh devalue a currency. Um however, actually the complete opposite. Ever since CO um we've seen a complete flip in trends in the markets and actually we could see uh the currency go the other way. I believe that it's still going to attract overseas buyers. Um the pound is probably a little bit undervalued at the moment. um and looking at other jurisdictions and their interest rates, Europe currently being lower, I think it's still really appealing for um Europeans uh to to of course transfer funds and purchase in in the UK.
The standard comparison is obviously with the dollar. Yes.
I mean, how's that going? I I some reports you read that Trump is absolutely decimating the American market, so therefore the dollar should be cheap, but it's not.
It's not. The dollar is the the world's safe haven currency. So whenever we see huge yeah geopolitical problems like as we're seeing um there the dollar tends to gain strength again another trend that seems to be uh yeah more common since co days so actually US market uh is m is still huge I think it will be this year it's also incredible value if you look at since the referendum to buy to purchase pounds and sell dollars so yeah those people that have been looking for a few years might be thinking, "Oh, I'm getting 30% off." Um, and I think that it's going to hold this strength.
Trump did want a weaker dollar, but uh with um yeah, all the all the things that he's up to, uh we're we're absolutely not seeing that at the moment, but uh yeah, I think continuing going forward, dollar strength and pound undervalued.
What's the comparison of particularly in the property market of of money coming in to money going out? There's still a I think if you particularly if you focus on London, there's still such a demand for uh internationals having that that London property. Um I guess it's a bit of a a flagship piece that you you have to have if you're a particular high net worth. Um but yes, there are a lot of uh UK people moving abroad. The easy one is still Middle East Dubai. um we see a lot of of fund flow of funds going over there probably because it's it's particularly easy to obtain residency and it's so tax efficient. Now again a trend since since co we see working conditions so different people don't need to go to their offices every day you can work particularly better weather um and better tax situation. Is Dubai still the hot favourite to get for people to go to or where where else is looking good?
Interestingly, the start of this year um Saudi Arabia have of course opened up their property market to the world. So whether that I I think it'll be a bit of a slow start for them just because of the infrastructure Dubai is already so welcoming in terms of the uh yeah being so easy to move into. probably Saudi might look a little bit more frightening, let's say, for people that don't know um the jurisdiction. Uh other than that, Europe's still popular. Portugal, Spain, we see a lot of a lot of people that are retired, expats moving to um why would you not with the you having 300 days of sun on your back?
Well, will thank you very much for coming in and doing your five minute appraisal of the currency exchange market. Very pleased to have you in the studio. Look
forward to having you again next month with your latest comments. I'm Steven Galpin. Thank you for watching. See you again next time.
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Hello and welcome to Property Insights.
Uh I'm Steven Galpin and today we're going to be talking about the world of property finance and nobody better to help me with that is Lucy Waters of Area Finance. Welcome to you Lucy.
Hi.
Well, tell us all about it. What's been going on this month? So, we had the Bank of England meeting earlier on in the month, which to some was quite disappointing. I think a lot were expecting a rate cut on the cards. Um, we were sort of in the balance as to whether that was going to happen and I think the vote being at 5 to four really demonstrates that they were very Yeah, they were very divided. Um, obviously there's the the wider economic outlook, but within that we've still got sticky inflation or stickier than they would like. So, I think until that gets under control, I think we'll continue to see that division um when the committee meets. But it's a bit of a problem really, isn't it, for the Bank of England because you've got you've got people saying, well, you know, inflation's going up, so don't don't cut the rate. But then the next minute they're saying there's no growth and people can't afford the the cost of living.
Absolutely.
Um and I guess I suppose we're as guilty as any because we tend to look at it from the property point of view. Yeah.
But it is a much wider spectrum of that that has to be taken into account.
Well, that's right. I think you know selfishly we look at it from our own lens. But we need the property market to move. We need liquidity in the property market. It's such a vital part of the wider macro and I think despite that the more positive picture is that interest rates or the average interest rates the average 2year and 5year fixed rates were below 5% um at the start of November which is the first time they've been there for some time right so actually what that shows us is that despite the bank of England's decision to hold interest rates we are seeing some lender competition and also a reduction in swap rates which means that lenders are able to pass on a lower cost of borrowing to those looking to buy and re mortgage. Lucy, I'm going to take you up there.
You better explain to our viewers what swap rates are.
Yes. So, a swap rate is effectively the rate at which your fixed rates are based on. So um a lot there's a misconception in the market that the Bank of England base rate is the thing that drives your mortgage rate and to an extent it is but the swap rates are looking at the picture of where interest rates are likely to go over a horizon of the 2-year the 5year um and it's the rate at which lenders are lending to each other and borrowing costs are based on and therefore it drives the interest rate that's actually put out to the customer.
Okay I think I've got it in short.
Thank you. Um, Lucy, I was looking at your notes uh pre filming of this program and um you you're talking about London prices taking a drop and you you you're suggesting somewhere around about 4% for the for the year. Um we do talk to a lot of agents in here and currently on a lot of the quite expensive properties we're seeing anything up to a 30% drop.
What's that doing for lender confidence?
Yeah, I I think that 4% to me sounded a little bit more positive than the real feel of what we're seeing as well. So, I'm probably talking more about Prime London here than anything else.
And I think Prime London has really suffered. And actually there's just not much liquidity in that market at all. Which means that where properties have transacted given the scale of those transactions it can have quite a big you know it skews the market because effectively if someone has to transact and it's a large value transaction. Yeah.
Um whereas actually what we're seeing is a lot of it just isn't trading and I think that end of the market with tax changes proposed tax changes you know it's been suffering for some time anyway. higher interest rates and proposed tax changes has been a real blow, but rental prices actually are growing in that sector. So, I think the yields have gone up, but capital values have come down. I think I'm old enough to realize now, Lucy, that it'll all come back anyway at some point in time. It's a cycle.
It's it's very circular, isn't it really? Um just very quickly um we do see now that with government legislation there's going to be an encouragement to go from lease hold to common hold. Again is that going to cause any security problems in in the property industry?
Are the lenders going to like common hold? I suppose the devil's in the detail with these things, but anything where there's uncertainty and where there could potentially be an impact to security, value or salability, that's what generally spooks lenders. So it will, I suppose, depend how it's managed and how they see that through. But generally lenders like things to be certain and they like to understand what can have an impact on the value of the asset. So I think it will depend how valuers perceive it. No panics yet then.
No panics yet.
Great stuff. Lucy Waters of Area Finance, thank you very much for coming in. Thank you for giving us your five minute roundup of the month's financial information.
Very kind of you. Thank you, Stephen.
Pleasure. Thank you for watching. That was Property Insights.
Hello and welcome to Property Question Time. I'm Steven Galpin and the show today is about answering your questions related to property. We're coming to you today from our studios in Canary Wharf, London. And helping me answer your questions is Sara Newsen of Realm 47 Property Investment Experts.
Welcome to you Sara.
Hello, Steven. Thank you.
And Lucy Waters of Area Finance. Welcome to you Lucy. Thanks, Stephen.
Okay, Lucy, you're going first and your first question is this. Buy to let finance for the last few years has been fairly easy to access with profitability in that sector taking a dive mainly through new taxation and increasing legislation. Will lenders be willing to readily fund diversification into other areas of property investment perhaps even commercial property?
Yeah, we've seen that already actually Stephen and I think um there's been a real shift from the mainstream blet to what we know as the specialist Buy to let market. So the mainstream buy to let focuses more on individual ownership buy to let properties usually where people have one or two and they've done it either you know through some additional funds they've got retirement funds things like that and that tends to be for your more mainstream lenders and we've seen a real growth in the specialist end of the market where lenders are attracting HMO properties SPV lending which has obviously become really popular since the tax ongoing tax changes. Um, so there are definitely more products already available in that side of the market and we've seen a lot of growth where some lenders might have lent on a HMO that was perhaps a small HMO then they start to go to the seven bed HMO and 10 unit multi-unit freehold blocks and things like that. When it comes to commercial lending that is a completely different ballgame. So that is a different type of funding. It's a different type of lender. But you do see more and more lenders stepping inside those product categories. Albeit it tends to be funded differently. It tends to be a completely different operation within their business. But lenders are looking to where there's opportunity and growth, especially with rental growth, which is what landlords need.
Are are you finding a sort of um relaxation of rigidity if you like because I mean the reason I say that just going on from this question you've got buy to let specialist lenders who have been stuck in that that tube okay have in the past have been a little bit reticent to look at anything else I'm also thinking of bridges perhaps in particular who yes we'll do the bridging but don't come to us at the end to do the extended lending because we don't want to know. But all of a sudden they are now there's a little bit of fluidity there, isn't there? Yeah. I think that's a good thing, isn't it? Yeah. Look, for for everybody involved, for a lender trying to capture a client and the entire value chain of somebody that's buying a property kind of pre being mortgageable, then being able to take it to the long-term hold if that's somebody's strategy, that makes a lot of sense for them rather than having it go over to a competitor who might offer one of the other products that they offer. and then they could actually lose the life cycle of that client on the next transaction because often these people are repeat borrowers as opposed to one-off transactions. So there is definitely an awakening in the lending market to diversification across these products.
I are are we moving back to um shall we say loyalty on both parts?
Do you know there is always a pocket of loyalty in the market and we deal with some customers who I know will only deal with us as a broker and they like to deal with specific lenders who they've had good relationships with and who have looked after them and there is also especially at the moment given interest rates are higher and everybody's trying to chase better returns there is a lot of shopping around. There's a lot of people that are kind of looking to find the absolute best margin out there and that strategy can be flawed because there is a risk that somebody goes down the wrong avenue chasing a headline rate and ends up with something that's not deliverable. So there's a balance to be had and and not everybody is as loyal as others and obviously loyalty will can only take you so far. You have to be within the ballpark of pricing to retain someone's loyalty.
Yeah. Okay. So you have a lot of buy to let um customers that you advise and look after. Are we fit are we seeing a real exodus from that particular market at the at the smaller end?
To a degree we're not seeing it too much. Um but if you go on to the social media channels you are seeing those people who manage their own properties exiting it is quite common place for them to be saying that's it I'm done. We are seeing a lot of professional landlords in the marketplace anyway. So you know the for every property we're selling, we've got another investor buying. That's what we do. So um for us, most of those investors are who are selling are moving into a different strategy or they are consolidating um not necessarily leaving the market altogether.
No, I suppose it's the same old thing though, isn't it? If there are a lot of people coming out of a market, what a time to buy. Yes. Yeah. Absolutely. Yeah. Out of disaster comes opportunity.
It really, really is. Right now is a great time to be looking to buy because there's a lot of people who are fearful and they're sitting on the fence and they're waiting and that's when you get your great opportunities come along. But I have to say in this current market when we've seen it before where landlords have got have said, "Yeah, okay, I want out. I will accept quite a substantial discount on my property." I am not seeing it so much right now. people would rather sit and hold their property and get a fair value for it.
Okay, good. Okay. Um, thank you for that, Sarah. Um, sorry, your question is this. Do the panel think that for the smaller landlord, it's perhaps time to come out of buy to let. The government seems very keen to discourage the smaller landlord and encourage the institutions to provide rental stock. If this is the case, what sort of diversification would the experts suggest to replace the BLT investments?
So that is I think an ideal that the government are looking at which is uh passing the private rental sector across into institutional ownership. Um which for me is a bit of a dream. I don't think it's realistic when you deep dive into how that's going to work and whether it will work. What we're seeing now is institutional investors and large large corporations going for build to rent. They're going for economies of scale. They want properties that are central where they're going to get growth. So, city centres, you know, the likes of Manchester, we know there's good growth happening there. They're looking at it from that business perspective, from the corporate perspective. Economies of scale, they want multiple apartments in one block. So also with with uh refurbishments, you know, they've got properties right now that are beautifully done, finished, brand new, high rents. In 20 years time, they'll be able to refurbish them all at the same time or rotate them. Economies of scale, that's what they're looking at. That's what they're getting into some of this bigger student stuff. When you look at all of the properties, the single dwellings that are out in villages out in smaller towns and scattered around the country, that is not something that appeals to them. People with gardens, you know, people who want gardens, that's not something that is currently appealing to the institutional lender or the corporate corporate ownership. So for me, there is always going to be a place for the private rented sector. we will always be needed for that that um space. Uh those people who are renting as well, think about what the institutional uh operator is offering. They're offering something that is newly refurbished in beautiful condition and it's high rents. Not everybody can afford high rents. Not everybody can afford or wants to live as I say in the city centers. So, you know, we have to look at this as a bigger micro a macro perspective. there is going to be a problem there and there's going to be a void and ultimately what's going to happen to those people. Is it going to be a privilege to rent?
Yeah. Well, I think you're right to identify that. I mean to me it seems that where you have these institutional landlords with, you know, very big multiple blocks. Um that's fine, but it's it's a sector of the market. It's not the market, is it? That that's the difference. And that's what that's what we mustn't forget really. Exactly. 100% agree. I mean, otherwise we're we're going to have these people running a cartel, aren't we? Yes. Monopoly once again. Yeah. That's what's going to happen.
Yeah. Caution.
What about the funding for this sort of uh thing, Lucy? Is money readily available for these big blocks that the institutions want to build?
Yes. Um, is the appetite there?
Yeah. It's actually a large part of what we do. I think one of the big challenges that we've seen over the last couple of years is that people who have either built them and retained them within their portfolio because it wasn't the right time to sell or because that was entirely their strategy in the first place. The challenge that you have is the change in yields has meant that some of them have actually become nearly impossible to mortgage purely due to the leverage.
Um because people have taken higher leverage say three, four years ago and now they're coming up to the end of their fixed rates and the yields have moved so much because it has to to support the changing the cost of borrowing that actually the values of these blocks have really taken a tumble. And whilst there is mortgage availability readily there for them, it really is a value thing and and lenders are assessing the value and the loan to value and they're also looking at the block value as opposed to the aggregate value of the individual units in most cases. So where you have more than say 10, that's nearly always the default position that a lender will take. quite interesting there because if you've got a sort of should we say an institutional block um if you want to move it, get rid of it, pass it on, whatever the expression is, you've got to find another institution that will conform with your figures and it's and it's usually on a yield assumption.
Yeah. However, on the smaller landlord situation, um somebody might be buying for any kind of reason. It might be a pension supplement. it might be a safe place to put a few quid that they've saved up. So, the constraints on selling are not quite so strong, are they? Yeah, there's more buyers in the market, isn't there? Quite interesting.
Okay. Well, on that note, um we're going to go to our break. So, join me again after the break when I'll be asking Lucy and Sara more of your questions.
Hello and welcome back to part two of property question time. I'm Steven Galpin and I'm joined by Lucy Waters and Sara News. Welcome back. Do the experts think that a return to 100% residential mortgages would kickstart the market and aid the younger generation in getting access to the path to home ownership?
In isolation, I'm going to say no. I think it is a helpful tool and I don't doubt that it will be useful for some and I think when used in the right way, sold in the right way and appropriately governed um the the product has its place for sure and raising a deposit is clearly part of the barrier to entry for some first time buyers, but you have on top of that stamp duty and legal costs and valuation costs. You know, there's there's many costs in the home buying process. Take the deposit out of it.
Yes, to an extent it helps, but actually affordability still in my opinion remains the number one blocker because actually the mortgage still has to be affordable. Um, generally with higher loan to value products as well, the interest rates are higher and therefore that impacts affordability. Let let me just put you to test on this one, right? Let's let's take down here. A studio apartment will cost you probably 4 to £500,000. So with a 25% deposit, with the extra costs, one thing another as a young person, you're going to have to find probably £120,000 to enter the market with one room and a bathroom. Yeah, it's a lot. Okay.
How are we going to get around that? Because you know it's just not acceptable is it? We we need people to get on the housing matter. We need it for the economy for them to be buying white goods, refurbing places, spending money and the other point that you mentioned which was the the the cost, the legal costs, the evaluation costs, that sort of thing, the stamp duty. They're not fundable are they? They're not fundable. So what's your solution to this as a as a hardened lender? I think the proposal sort of in the in the bundle of proposals that that the government have been making pre-budget.
I think one of the only ones that I actually quite like is to flip the stamp duty on to the seller because that is another blocker. You know, that's a cost that people have in order to buy a home. But actually, all of those costs are one thing. back to the affordability point. If somebody's raising say a three or400,000 mortgage, they need to be earning the best part of £100,000. And that obviously depends on what their expenditure looks like, their outgoings and things like that.
So, affordability is as much of a blocker as the deposit is. And you know, I don't know what you think, but I don't see that changing because house prices, in my opinion, will continue to grow because we have a supply issue. We won't meet the housing demands. We won't meet the house building demands because we never have done and we appear to be miles away from hitting those targets. So, actually there's a real supply issue and then on top of that, an affordability issue. We had the help to buy schemes that tried to address that which in some ways it did. It got many many people on the ladder and it was a really favoured scheme developers.
Yeah, it helped developers but it also then creates sort of a future affordability and also a resale issue because a lot of those properties don't have the value that people paid for them because it was inflated due to the availability of the help to buy scheme. So therefore those values have come back and then people become mortgage prisoners unable to yes do much with that property. But you see again the the government and many other people in the industry love these um 50/50 ownership renting you know part ownership shared ownership.
Um you see I don't I don't like that at all because you're you're paying a mortgage you're paying a rent. The two put together are probably more than the single mortgage would be anyway. And on top of which, although yes, all right, in theory, your your place is inflating and thank heaven you're on in or on the market, but you've got to find somebody who wants to buy half a home, haven't you?
Yeah. Yeah. And and that's not all that, you know, talk about a trap. I it's really it's a really tough one to try and solve because on one hand you've got the government that's really anti- landlord that's trying to push landlords out of the market but then you've got people who have the aspirations of home ownership and I think that that's embedded into our culture and I I doubt it's going anywhere from a perception you know people want to own their own homes. However, if we don't have affordable rental property and availability of rental stock, the people whose affordability is not there to buy homes, what do they do? That was my question to you. But do they do it's it's a real challenge. I think the 100% mortgage it it helps, but it doesn't solve the problem in its entirety. And I suppose you're right. It could cause problems in the future, couldn't it? That that's the difficulty.
Sara, how do the experts see the renters' rights legislation affecting the market? And if in a negative way or even perhaps creating a further stock shortage, will it result in higher rents?
Yeah, absolutely. The Renters Rights Act, which came in recently, uh not fully implemented yet, I will add. So, we're still waiting for dates for the different um parts. Well, can I can I just stop you there? I see the government announced that they they'd found various flaws in the writing of the legislation, drafting drafting of it and I think it's being put back again, isn't it? Well, it's actually passed, so it is law, but the dates of implementation are still to be decided. I think the they were suggesting 6 months until the date that the ass were changed. So, we had the new tenencies that were implemented.
Um, in the meantime, I think, you know, ultimately everybody's preparing for it and there's a lot of landlords who are exiting and that will increase the rents. So, shortage of rental properties will increase rents. However, as I said earlier, potentially those rental properties will just be sold to more professional landlords who will take over. Um, so yes, I do think it will impact the rents. Um, everything that they're looking at doing right now is going to impact the rents. So, I do think we're going to see increases. Uh, but as I say, nothing's in yet. Uh, the main one was removal of section 21. Yes. So, no fault evictions. And a lot of people have said that they're leaving because of that. Now, for me, I don't see it being an issue.
The whole renters' rights act to me, I don't see as a huge issue. Um, if you want your property back, if you want to move into it, if you need to refurbish it, if you want to sell it, you can still ask the tenant to leave. You need to give them a longer period of notice, 4 months, but you can still move that property on if it no longer fits your portfolio. You can sell it to the open market. So, for me, I don't see an issue. What we're going to see is less people who aren't professional landlords going in and and renting a property out short term thinking, "Oh, we'll do this for a while and then we'll step away from it." They won't have that option.
Okay. So, let's just go back to the section 21 or the negation of it. Um, you want your house back or your flat back. Where does the argument take place? If if there is an argument about your reasoning for wanting it back, the argument literally because it's section 8 notices now. So, you have to adhere to one of those notices and that would be if you're selling the property, you are allowed to serve notice and take your property back. You do have to legitimately try to sell your property. There's no getting around that. Um, and if the property is obviously in in desperate need of full refurbishment or redevelopment, then the tenant can't stay in there. But, but but where does the argument take place?
So, I'm a tenant. you're you're you're saying you want it back because you want to sell it or you need to sell it and I say I don't think so. I think you're you're fibbing really. I think you're just trying to get me out. So where does the argument take place? Is it the county court? Is it a tribunal or Yes, it would. It I mean if they if they contested it, but I don't think tenants would contest it. They're humans at the end of the day. And I don't think, you know, yes, you're going to get one or two problematic tenants. Um but overall the the majority of tenants are are fantastic.
Um Touchwood I've had very few issues in my 20 odd years of doing rentals uh managing other people's Come down to London. Oh gosh. Okay. I won't wait then. Tick that one off. Cross it off. It's a it's a difficult one because I can just see the courts getting awfully clogged up on this. And I can also see that if there is um if there is a problem over this, if it becomes problematic to get the decisions made, then Lucy's lenders are going to start fidgeting about about funding properties. This is the difficulty. The concern over the courts is because now tenants have the right to contest any increase in rent and say that they don't believe it's in line with market rent. They've always been able to do that, but previously the judge jury could turn around and say, "No, actually, we think that your landlord's being fair and we think it should be another £100 on top of that." So, it could have gone either way. That's no longer the case. They're no longer going to lose out and all they're going to do is while they wait for the hearing is they're going to postpone paying that increase. This is where the big fear comes from from landlords. But as I said earlier, I don't think the majority of human beings would turn around and do that. I think it's only going to be certain tenants that play the game and look to look to contest it each time the rents increased. Yes.
So overall, are you happy with the legislation? I wouldn't say I'm happy, but I will I will accept it and we can work around it. Yeah. Okay. Do you agree with all that, Lucy? Yeah. I think look, raising standards is always a positive. Um Unfortunately, landlords have had a really tough time. So, the fear of people being able to abuse the system and find these loopholes is clearly a concern to people and then that has a knock- on effect to lenders. But I think if we can raise the standards and compete with the professional landlord concept of, you know, trying to squeeze all the smaller landlords out. If we can say, well, look, we're all adhering to the same standards and everybody's, you know, playing by the rules, then actually the long-term benefits hopefully will have an overall positive impact on the market.
Okay. Well, on that very optimistic note, we're going to end the show. So, I'm going to say a big thank you to Lucy Waters. Thank you for coming in, Lucy.
Thank you, Stephen. And big thank you to Sar News.
Thank you for coming in and traveling all the way down to London to see us. I'm Steven Galpin. Join me again next time on Property Question Time.
That's London TV, channel 117 on Sky, 7:00 on Wednesdays. See you next time.