Prime property update: Our key mortgage and buying trends

How have UK interest rate predictions shaped mortgage decisions?

Charlotte: In the first half of 2024, we saw greater appetite for variable mortgage rates, as larger reductions in interest rates were expected over the course of the year. However, as economic data suggests these rates could come down more slowly than anticipated, the conversation is changing.

In the short-term, clients are recognising that fixed rates can be more affordable. This also means they could borrow more to achieve their aspirations, for example, if they are upsizing their property.

Jacob: Among international clients, I’ve seen an increase in enquiries about two-year fixed rates, with the understanding that it might not necessarily be more cost-effective to wait for rates to come down if the timing of the Bank Rate cut is delayed.

David: We’ve seen the same pattern in the mortgage broker market. While mortgage needs differ on a case-by-case basis, in times of volatility a fixed rate can provide reassurance.

Are policy changes at the forefront of clients’ minds?

David: When it comes to external factors, I think it’s important to note that people aren't just thinking about rates. There's a whole raft of non-rate-related issues to consider in the prime and super-prime segment in London. This includes the UK General Election in July, and potential tax changes.

Jacob: Many of our clients have resident non-dom status, and the potential changes to the way the UK taxes offshore income has prompted some people to explore their options.

The recent election in South Africa has also been a consideration for some international clients. We’ve been providing an Agreement In Principle, which helps clients understand what they can actually do, and when.

Charlotte: For private equity professionals, the potential change to the tax treatment of carried interest is front of mind. If tax rates increase from 28% to 45% and take-home income is reduced, this could have significant impact on mortgage affordability.

In this situation, our ability to consider all viable income streams and explore flexible solutions is key. These could include high LTV loans, interest-only repayment periods or the ability to make capital reductions at appropriate times.

James: Among property investors, we had a mini spike in activity in April and May ahead of upcoming changes to Multiple Dwelling Relief on 1 June. We’ve been helping clients to act quickly to finalise purchases in advance of this deadline.

In the current climate, we’re also finding that a lot of clients who would normally sell properties upon completion of their development, are concerned about the length of time it takes to sell multiple units. They are seeking buy-to-let finance, typically on variable or short-term fixed rates, so they can sell if the market improves in 12-24 months.

Have you seen any notable changes in loan size or property value?

James: We haven't really seen any difference in the market from this perspective. There was a worry that house values would drop in 2024 – by something like 3% or 4% – but that hasn’t happened. We're now seeing stable property values, or even slight increases in certain areas.

Jacob: We have seen some down-valuations, but this does not necessarily translate to widespread reductions in sales prices. Where there has been a change, we’ve maintained an efficient mortgage process.

Charlotte: We’ve had some clients who have been looking for a high-value property for two or three years and have recently been able to make a purchase. This could be a sign of a return of some supply to the market. 

Have there been any changes to which locations are sought-after?

Charlotte: As a team, we’ve noticed that there’s increasing demand for second homes within a commutable distance to London, where the primary earner is usually working. Recently, there have been more applications in places such as the Chiltern Hills or Hampshire and fewer in areas further beyond the capital, such as the Cotswolds.

James: In the private rented sector, we are seeing a lot more demand outside London. In a high interest-rate environment, clients want to make sure they can achieve good rental yields. While rental income growth was above 10% in 2023, it’s now dropped to around 6%, so regional areas and co-living spaces are in focus. Areas such as Brighton are popular, along with cities such as Nottingham, Bristol or Bath, which have large student and young professional populations.

As a private bank, we use regional heatmaps to understand the scale of the investment opportunity in these areas.

Is there still appetite for renovation or development loans?

David: Yes, in the last 12 months, we’ve seen more people looking to add value to their existing homes through refurbishment and development. Loft conversions are very popular and we’re also seeing two-storey extensions, doubling the square footage of the property.

Charlotte: Many of our clients are aspirational, and we are also being asked to fund development of plots of land with existing planning permission in target areas where they are renting or own an existing home.

What mortgage challenges are common at the moment?

James: Property entrepreneur clients are currently challenged by a relatively slow sales market. We recently helped a property investor who had completed a large development in London, but received limited sales offers. When he rented out multiple units in a single weekend, he decided to retain ownership of the properties and rent them all out, with our financial assistance. 

Jacob: For international clients, it has been important to include foreign-currency income in affordability calculations to achieve 90% LTV deals. We’ve included the ability to make over-payments during those early years and we’ve been able to complete deals in an environment where valuations are changing.

Charlotte: We recently helped a private equity professional buy a property at a high LTV on a tight timescale, when they agreed a competitive price based on a quick completion. We were able to take a holistic view of their income and include their carried interest payments in affordability calculations to reach the desired outcome.

Client liquidity is often linked to the IPO market, which has been subdued, so some people have been looking to maintain higher LTVs for longer than they would usually, with the ability to make overpayments when appropriate.

Private equity is one type of investment where you can still make returns above the value of interest rates, so we often see clients borrowing so they can use their capital to co-invest.

Important information:

This article is for general information purposes only and any reference to Tax should not be used or relied upon as professional advice. It is based on regulations in effect at the time of publication and no liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a professional advisor if you need further advice or assistance as the tax implications can vary depending on an individual’s personal circumstances and may be subject to change in the future.

Investec Bank plc provides this media for information purposes only. The opinions featured are not to be considered as the opinions of Investec and does not constitute advice. It is advisable to contact a professional advisor if you need financial advice. Your use of and reliance on any of this content is entirely at your own risk. Investec residential mortgages are only available for residential properties in England or Wales and are primarily available to UK residents and subject to eligibility.