The housing market in 2010, resembled for me a game of two halves, with after a fairly positive start, the market trailed off in the second half of the year. Overall this has left us with house prices according to the Nationwide, declining by1.3% over the year. During the first half of the year I believe prices were squeezed upwards due to a lack of supply. However, in the second half, I think that the decline has, to some extent, been caused by the withdrawal of HIPS. This has allowed vendors to market their properties without any upfront costs, and therefore increased supply. The withdrawal has influenced an already weakish market that had suffered from uncertainty due to poor job prospects and redundancy in the economy, as well as the squeeze on lending. Although 2010 has not been a vintage year for the housing market some areas have prospered, particularly in the South. Unfortunately the North West has not benefited, and our locality has experienced a sluggish year.
As we enter 2011, what are the prospects for the housing market? After having a negative year, will house prices rally this year? In theory with interest rates having remained historically low, and with many first time buyers eager to purchase, it would be reasonable to think that the market will rally. To add to this, I have often compared renting versus buying, for first time buyers in particular, and if it was significantly cheaper to buy than rent, I then felt that the housing market was moving into a recovery position. If we, for example, take a £100,000 purchase with a deposit of 10% you can borrow as low as 3.79% costing £465 per month, borrowing over 25 years, as opposed to paying up to £550 per month in rent. As you can see providing that the deposit can be saved, buying a property is reasonable using this measure.
However, the housing market is still only partially functioning, with lenders making it very difficult for borrowers who do not have large deposits of 25% or more. As prices fall and income multiples reduce, this has a damaging effect on the market, coupled with stricter underwriting. These measures taken by the lenders, together with job uncertainties, have let the market becalmed, with volumes in the North West around 50% of the five year average.
On the face of it, the negative points appear to outnumber the positive. I must admit that unless the government intervene I can’t see the market recovering in 2011. However, even with this battery of negative data, I still believe it may not be a bad time to enter the housing market as a first time buyer or a buy to letter, provided you are prepared to take a long term view. In my opinion prices may well fall back further in the short term, but at the moment the choice of properties, low interest rates and buying power should help to offset some of these negatives, with some purchasers who are prepared to negotiate aggressively being able to grab themselves a bargain.
If you are looking to purchase a property, it is worth contacting an Independent Financial Adviser who specialises in mortgages to help you obtain the mortgage that is most suited to your needs. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057 or via e-mail, info@kieronbassett.com.
Kieron Bassett CertPFS
10th January 2011
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