Advice and Opinion

Borrowers in better position to afford mortgages after stress-testing initiatives

There are still many options for investors requiring mortgages for foreign property purchases despite tightened lending criteria across major markets for property investment.

Lessons learnt from the housing bubble in the US a decade ago have resulted in a more practical approach to mortgage lending.

Credit has definitely tightened in most markets, especially for international/foreign buyers

Banks have toughened their lending requirements ever since the global financial crisis in 2008. Typically we are seeing lower loan-to-values and higher deposits required.

However, all loans since the global financial crisis have been better stress-tested. This has resulted in lower loan-to-value mortgages, which means less debt, ultimately placing borrowers in a better position to service the debt even with increases in interest rates. In the days of 100% or 90% mortgages, this was not the case.

– George Radford, head of Africa at global property firm IP Global

While cash buyers are king in this environment, qualifying buyers who get mortgages are in a better position to manage repayment as stricter conditions ensure affordability.

We have seen an increased number of cash buyers in the UK. This has been driven by clients taking advantage of a currency play and the desire for clients to diversify local emerging market currency into more stable Tier 1 markets with more stable currencies.

– George Radford, head of Africa at global property firm IP Global

House prices have grown steadily in the markets that IP Global is investing in, such as the UK and Germany. Between higher capital values, tighter lending criteria and creeping interest rates, this has meant that it has become more difficult for young or first-time buyers to qualify for a mortgage.

Young people are in the market, but there are lots of barriers to entry

– George Radford, head of Africa at global property firm IP Global

Mortgages are available, but there are less mortgage financing options and lower bank loan-to-value ratios, meaning higher deposit requirements.

In most Tier 1 markets around the world, unless the younger generation gets assistance from family for their deposits, it is taking longer for them to get onto the housing ladder.

With the rising interest rate trend in major economies like the UK, the cost of servicing debt increases – putting pressure on first-time buyers.  The UK government in particular is acutely aware of this problem and has put various initiatives in place to facilitate younger first-time buyers getting on the ladder. These include Help To Buy, shared ownership schemes and affordable housing requirements in new build projects.

It’s a tough market for younger buyers. But, for investors looking for an investment property, the mortgage market, although more restricted than previously, still offers buyers with viable options, especially as higher rentals are achievable in selected growing markets. These include the UK and Germany, where IP Global has an extensive portfolio

– George Radford, head of Africa at global property firm IP Global