Signs of confidence return to the property market

Ray Boulger

The decision by the MPC to leave Bank Rate at 0.5 percent for two months running is likely to be the precursor for several more months of the same, so what does this tell us about the property market?

The committee’s focus will no doubt switch from Bank Rate to how aggressively to implement the Quantitative Easing programme. However, whilst it is difficult to be confident how long Bank Rate will stay at 0.5 percent, it is likely than when the MPC starts increasing Bank Rate it will move up quite quickly, which could be very uncomfortable for anyone still locked into a variable rate mortgage at that time.

Borrowers on variable rate mortgages, especially those with any sort of interest only mortgage, should therefore be very aware of the risk of a rapid rise in their payments at some stage, even though that may not happen this year. Switching to a fixed rate for at least five years will be the best way for most people to buy protection from increased rates, but the timing of when they should switch will depend on individual circumstances and borrowers should seek advice from an independent mortgage broker.

Meanwhile borrowers with tracker mortgages and those coming off fixed rates onto what in most cases will be a lower variable rate, should take advantage of the current low interest rate environment to pay down any expensive debt such as credit or store cards, and/or reduce their mortgage, so that when rates start rising again their debt burden will not be so onerous.

What now for the property market? There has been more positive news on the property market over the last month, with Nationwide’s real, i.e. non seasonally adjusted, house price index showing increases for each of the last two months and a net fall of only 0.8 percent in the first four months of this year. Estate agents have been reporting increased interest from both first time buyers and movers since the beginning of the year, which is also reflected in our figures, and some of that interest is now translating into sales.

However, the restricted availability of mortgage finance is thwarting a significant number of potential buyers and however affordable the mortgage might be becomes irrelevant if a deposit of at least 10 percent can’t be found. Even with a 10 percent deposit many first time buyers are being knocked back because of the very high credit score lenders require to agree a 90 percent LTV mortgage. Knowledge of the market and lenders’ criteria is therefore a key issue.

Other positive news for the housing market comes from the RICS monthly survey, which is now reporting the average length of time taken to sell a property is slowly declining and that relatively little new stock is coming onto the market, despite the increased number of forced sales. Furthermore the Consumer Confidence Index from Nationwide recorded its largest rise for two years.

These are all indications that conditions in the housing market are now improving and I expect the market to stabilise by the third quarter of this year and house prices to show a net fall of only five percent in 2009. However, house prices are unlikely to recover quickly. Redundancies, and the fear of redundancy, will haunt the economy for at least another year and that will be a deterrent to buying for many. It will also be the main reason for the expected sharp increase in repossessions this year, despite improved mortgage help schemes from the Government for people who lose their jobs.

Looking further ahead the prospect of increases in interest rates, plus lenders’ less generous affordability calculations, will inhibit house prices increasing too quickly.

Contact
Ray Boulger
020 7611 7072 / 0800 71 81 91 or visit charcol.co.uk