Ideal Time to Buy into the Property Market?
Introduction
The United Kingdom officially joined other major economies – the Eurozone, U.S.A. Japan, etc. – in recession in the final quarter of 2008. House prices are continuing to fall by a further 1.7% in April 2009, and unemployment is continuing to rise, up to 2.2 million in that same month, so borrowers with small deposits remain a riskier proposition than those who can find larger amounts, in the eyes of mortgage lenders. In fact, many lenders are demanding a deposit of 40% in order for borrowers to qualify for their best mortgage deals, and the choice available to those with a deposit of say, 10% is very limited indeed. Furthermore, even if mortgage lenders are willing to take a risk, they are required by the industry regulators to set aside more money as a provision against bad debt, so the volume available for lending is less than it was previously. Falling house prices are of course, not so much of a problem for those who already own property and wish to trade up. Simple mathematics dictates that a fall of say, 25% in the price of a property worth £250,000 is less than that in a property worth £500,000, so if anything, the market is working in their favour.
Property Market in the U.K.
Despite market conditions remaining fairly hostile, 20% of first-time buyers questioned in a recent survey said that they thought it would be more difficult to gain a foothold on the property ladder in 12 months time, while nearly 60% expected housing prices to stay the same,or increase in the interim, and nearly 70% said that they thought now was a good time to buy property. The fact that the mortgage market remains subdued and that many people have been forced to sell their properties means that some first-time buyers are able to purchase property at 25% than its peak price in late 2007.
The availability of mortgage products, and dramatic restrictions on the high LTV ("Loan to Value") lending that was commonplace a few years ago is still a problem for some first-time buyers however. The days of 100%, or even 125%, mortgages are long gone, so that, even if house prices fall within reach of first-time buyers, they still remain locked out of the market by the lack of affordable mortgage finance. That is of course, unless they somehow conjure up the 40% deposit required by lenders to unlock their best deals. The average interest rate for a 60% LTV mortgage is 4.29%, down 1.63% on six months ago, whereas the average interest rate for a 90% LTV mortgage is 5.98%, down just 0.74%, according to recent research, and there are far fewer deals available to borrowers with small deposits.
Chancellor of the Exchequer, Alistair Darling, announced a number of measures intended to stimulate the housing market during his Budget speech on 22nd April. These included the underwriting of £50 billion of mortgage-backed securities to encourage lending, and an extension of the stamp duty holiday, for homes worth up to £175,000 to the end of 2009. This should mean that mortgage deals are easier to come by, for first-time buyers, and the stamp duty saving alone could be up to £1,750. In fact, the measures announced by the Government, cumulative cuts in the Bank Rate – which has fallen to 0.5% from 5.0% in October 2008 – and an increase in the number of mortgages being approved has led to cautious optimism regarding the housing market.
Certainly, interest rates are extraordinarily low, making mortgage deals generally more affordable – relaxation of the tight lending criteria imposed during the credit crunch is also evident, which will help the market still further – and it is possible to drive a hard bargain in what is, very much, a buyers' market. HSBC for example, was one of the first High Street lenders to make some of its best mortgage deals available to a larger cross-section of borrowers, including first-time buyers. The bank cut the maximum deposit required to qualify for its best deals – including a "tracker" mortgage at 2.95% – from 40% to 25%, in doing so making them available to 20% of borrowers.
For those borrowers who have to date been unable to secure a mortgage deal, or who have preferred to wait until a clearer picture of the housing market emerges – with the distinct possibility of further falls in housing prices – renting has become a popular option. Renting avoids having to pay hundreds, or thousands, of pounds in fees and expenses, and the oversupply of rental property means that you, as a tenant, can drive a hard bargain.