Passing The Buck

Passing The BuckInteresting times in the financing world.  Many lenders pulled their fixed rates overnight, leaving purchasers with only the option of a variable rate.  The reason for choosing fixed rates is to insulate the borrower from future price rises.  Therefore, this situation they were left in was not ideal.

Many of the lenders who pulled the rates will be coming back on the market with a loaded rate, which will attempt to take into account future anticipated rises.

What’s interesting is there are other lenders who did not follow suit, and used this vacuum created in the market to increase their share by filling the space.  It appears to be a smart move.

One client we are arranging some funding for, who happens to be the owner of an estate agency, had a seasoned and mature outlook rather than panicking.  He knows the Central London market is especially resilient; especially, around the £1M and below mark, which is not a lot of money in this location.  The lender we had sourced for him increased their rates by a few decimals, he was simply going to pass this on to the seller and ask for a discount which would cover the loss over the five years.  And he was confident of making this happen.

He also mentioned to me a deal he is selling to a hedge fund manager for £8M, based in the States, who is very happy, as he has just got a discount of about 30% due to the weakened pound.

This is the interesting aspect of the London market, a weakening in one segment, brings opportunity in another.  This is because the foundations of the property market are strong; it has a long history and there is transparency.  Foreigners love the idea of owning a piece of prime London, a large part of this is due to the British Empire previously owning a large chunk of the world.

A softening pound rekindles their interest again.  The borrowing interest rates don’t bother them as they tend to be mostly cash buyers.  Another manager of a large agency in Baker Street told me if you compare the prices from 2014, there is a 48% discount compared to today’s value for an overseas dollar buyer.  These types of purchases are not for the faint hearted; as the cost of holding them is not cheap and requires a deep pocket.

What will be interesting in the coming year will be when investors and homeowners come to remortgage.  They will be forced to take rates which will be 4-5 times higher than what they have been used to paying.  According to statistics, 40% of property owners will be looking to remortgage and will be faced with some hard decisions to make.  The issue is a long honeymoon period of low interest rates has made borrowers too relaxed and naïve.  Double digit interest rates look like a real possibility, we are just under this on non prime cases.

These are interesting times.  There will be blood shed; but also opportunity in the times ahead.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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