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Many would think that first time buyers might welcome the effects that the credit crunch is having on the housing market as it is bringing the prices down after years of steady rises. However whilst some properties are becoming more affordable, finding a mortgage that is affordable is more difficult. First time buyers have less choice nowadays when it comes to mortgage providers due to many lenders withdrawing products from the market. The products that are still available often have high rates of interests as well as steep arrangement fees. In addition they are now only available for smaller amounts, meaning that some areas will still be out of reach for first time buyers.
On the other hand, those who already have mortgages are also suffering. Many people who secured themselves cheap two year rates before the credit crunch are now finding that they are due to expire and similar deals are no longer available. In addition thousands of homeowners have found themselves in negative equity after the price of homes has dropped below what they originally paid for the property. Statistics for the UK show that there was a 2.5 percent decrease in house prices during May which is the largest drop in one month since records began in 1991. Since last October the average drop in house prices has reached £12,500. Predictions for the future look bleak with experts stating that they believe house prises in the UK will drop by an average of twenty percent over the next two years. If this is the case, then it is predicted that around two million homeowners could end up with negative equity.
Negative equity is not necessarily a bad thing if people are planning on staying in their current homes for considerable time; as trends in the housing market have shown that prices typically do recover over time. However for those people who are looking to move or need to remortgage during this time then things become a little more difficult. It is estimated that over 1.5 million people will need to remortgage this year and finding a good deal is a tricky business. Those who need to remortgage for more than their house is currently worth will find that the deals will be even less competitive and in some cases they will have no other option but to remain with their current lenders variable rate which is often a lot higher.
Overall predictions for the housing market over the next two years are looking bleak which is encouraging more people to stay put in order to ride it out. There are also fewer buyers as consumer confidence in the market plummets. Those who do need to sell will find they have to lower their prices quite substantially to entice the buyers in; whilst those who do want to stay will find it harder to find competitive mortgage deals. We will just have to wait to see what the future holds.
Property prices are on the rise again according to the latest survey by the Rightmove property agency website. They reported the largest average monthly house prices rise in two years during February to leave the average residential house asking price in England and Wales at £201,600.
In their report, Rightmove put the record asking prices down to a shortage of sellers and increasing demand, especially a return of buyers at the lower end of the market which should have a knock on effect further up the property ladder.
However Miles Shipside, Rightmove’s commercial director, sounded a note of caution, “Sellers must not get too ambitious or the recovery could run out of steam as affordability is over-stretched again”.
The Rightmove findings seems to stand in contrast to the figures recently released in the FT House price index, which shows that the, “recovery of house prices since the Autumn has been extremely muted and did not gather pace at the start of 2006”. The FT also reported that two other separate sets of secured loans data published about the same time, “showed mortgage lending for January was down on the previous month but higher than the figure for January a year ago.”
The FT house price index shows a subdued market rather than the more buoyant figures from Rightmove, or the lenders, the Halifax and the Nationwide. The FT believes that their figures based on Land Registry data provide an accurate representation of the market, with the figures from the lenders’ bouncing around, “in ways most unlikely to reflect reality.”
Many of those who are currently seeing a restrained increase in the market figures are looking towards possible future Government action through the Bank of England to increase sales. Howard Archer, the chief UK economist at financial analyst Global Insight, feels that an interest rate cut is on the cards in the early part of 2006. Mortgage comparison site Moneynet believes that a widely expected Bank of England base interest rate cut will lead to the housing market, “getting a shot in the arm with many people looking for the right mortgage package to get them on the housing ladder.”
Independent mortgage adviser from John Charcol, Ray Boulger, feels that an interest rate cut which will help the housing market is on the cards. "I expect to see at least two quarter point reductions in base rate this year and house prices to rise by about 5.5 per cent.”
The Council of Mortgage Lenders most recent figures indicate mixed results with gross mortgage lending in January up by 32% to £23bn compared with the £17.4bn recorded in January 2005, however this was down from December’s high of £26.9bn.
Although the recent reports appear to show contradictory and inconclusive results, Howard Archer commented that, “Although the British Banking Association showed some slowdown underlying mortgage lending in January, this followed a particularly strong performance in December. Overall the data indicate the marked improvement in housing market activity - borne out by the latest report from Rightmove.”
Disclaimer:
All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.
You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.
Useful resources:
Financial Times house price index -
Moneynet mortgage comparisons -