The property market can be a fickle beast to tame. Itâ€™s very difficult to predict too far ahead where real estate and house prices are concerned, and thatâ€™s principally down to the ever-changing nature of the marketplace.
Changes happen all the time and the value of properties, the rates of interest and the availability of mortgages are in constant flux. So if youâ€™re looking to buy, invest or manage a portfolio of real estate, getting a meaningful overview of the market can be tricky.
And thatâ€™s why we always advise that you talk to a professional with the right drilled-down experience and knowledge of the property sector.
The impact of the â€˜affordability testâ€™
Just over a year ago, the Financial Conduct Authority (FCA) completed a comprehensive review of the mortgage market. The upshot of this review has been a new tightening on lending thatâ€™s affected smaller property investors and private buyers alike. Itâ€™s now far less easy to get the mortgage you need you need.
This is a big change to the pre-recession days of the property sector. It used to be that you just filled out a mortgage form and told the lender your salary and income. It was basic and reasonably quick â€“ and there wasnâ€™t too much digging into the details of your personal finances.
Knowing the personâ€™s base income is no longer enough, though. The â€˜affordability testâ€™ was brought in and that looks not just at your income, but at your expenditure too. So if youâ€™re looking to get a mortgage, you need to make sure your financial affairs are looking in good shape to pass the test â€“ and that will mean some quite forensic scrutiny of your bank balance, spending and disposable income.
The affordability test looks at your lifestyle and your costs and works out how much you actually spend, compared with the previous approach of merely measuring how much you earn. Two people on the same salary could spend very different amounts â€“ and therefore a certain property may be affordable to person A, the frugal spender, but not to person B, the risky spendthrift.
The European Union (EU) is also trying to push through an affordability test for buy-to-let properties. This could have a huge impact on the market and will make it even more important that your finances are in order and in the best shape to pass a test on affordability.
Other changes affecting the market
There are other changes to the property sector that also have the potential to affect your buying.
The ‘mansion tax’ being proposed by both the Labour and Liberal Democrat parties would have a big impact on the property market too. This mansion tax would impose an annual charge on anyone owning a property worth over Â£2m. Thatâ€™s likely to hit you hard if youâ€™re a London property buyer or investor, with prices of real estate being so much higher in the capital.
The mansion tax could also be an issue if your property has grown in value over time. So if you bought a large family house two decades ago, it could be hit by the mansion tax, even though on paper youâ€™re not technically a wealthy person.
Any changes in interest rates could also have a huge effect on the market. A rise in interest rates would mean you can no longer afford to make repayments or get the mortgage you need in the first place.
Talk to us about your property plans
So, as you can see, itâ€™s extremely difficult to predict the future of the property market. The combination of changes to legislation, taxation and interest rates make for an unpredictable market.
But there is a way to get a better overview of the vagaries of the market. Talking to an experienced professional adviser helps highlight the challenges and find the right solutions to overcome them.
At Caplan Associates, we specialise in advising on the property market. And that means weâ€™ve got the knowledge and insight you need to safely sail the choppy seas of the real estate sector. Weâ€™ll listen to your property ambitions and will guide you through the process of reviewing your finances, making the relevant changes and getting themÂ in the best possible health to pass the affordability test.
We donâ€™t have a crystal ball (sadly), but we do give you great advice thatâ€™s based on a solid, practical understanding of the market.
If youâ€™re looking to buy or invest in property, find out more about we can help you on our property page.