Over the last few weeks there have been signs that high net worth individuals are maximising their liquidity. It would appear that many investors are readying themselves to cherry pick depressed assets in the aftermath of the coronavirus lockdown. So, how are they increasing liquidity while maintaining their current property portfolios?
Refinancing and remortgaging
Despite the fact that the traditional mortgage market is struggling with an array of mortgage packages being withdrawn, there are no such difficulties in the refinancing/remortgaging sector. Liquidity is extremely high, competition is strong and interest rates are minimal to say the least. Recent reports suggest that a five-year mortgage could be fixed at between 1.5% and 3% over the Bank of England’s base rate of just 0.1%. So, finance is cheap but how are high net worth individuals overcoming traditional valuation difficulties?
Low LTV ratios
Some of the mortgage operators towards the higher echelons of the sector are reporting property refinancing in the tens of millions of pounds. In the midst of a lockdown, when it is impossible to carry out traditional valuations, it seems that desktop valuations are more than adequate. Why?
Simple, the vast majority of the refinancing/remortgaging activity is being carried out on LTV ratios no higher than 65%. This therefore leaves a 35% insurance for the mortgage companies before they start to move into negative loan equity. When you bear in mind that Knight Frank recently forecast that London prices will fall by just 2% in 2020 before bouncing back by 6% in 2021, it looks at the moment as though the risks are minimal to those remortgaging expensive properties.
Long-term investment in property
When you bear in mind that some investors are literally freeing up tens of millions of pounds of liquidity, we can only imagine the wave of funding ready to hit the market if prices do fall. Incidentally, current signs indicate that the luxury property market in London has remained relatively stable in these troubled times. It would appear that many high net worth individuals remain financially untouched by the lockdown due to their conservative approach to investment in years gone by.
So, while many are sceptical about a U shaped recovery for the economy it does look as though we could see a U shaped recovery for the property market. There will be exceptions to the rule in the luxury property market, where perhaps homeowners have overstretched their finances or are experiencing business difficulties. Current feedback suggests that these “must sell” properties might not be on the market for too long!
The fact that ultrahigh net worth and high net worth individuals are significantly increasing their liquidity at the moment, by refinancing their property portfolios, says everything. Amidst the doom and gloom of the lockdown, impending economic crisis and liquidity issues across businesses and families, there may just be a light at the end of the tunnel. We know that house prices are central to the finances of many families across the UK both in terms of assets and expenditure. If the economy was to recover fairly quickly, unemployment remained relatively low and interest rates at or near historic lows, this would help alleviate some of the pressure.
There are still challenges ahead, the lockdown is not over yet and the economic damage is difficult to calculate. However, this “once in a generation” event has certainly caught the attention of property investors looking to cherry pick depressed assets at the right moment.