The land registry tells us that at December 2011 house prices dropped by 1.9% over the year. The London area was the only region to record house price increases with the Northwest lagging with a fall of 4.8%. We have had an eventful year with the UK stock market being very volatile having recorded losses of 5.6%. This is not too bad a performance when we consider that the markets have endured earthquakes, revolutions, sovereign downgrades, high oil prices and inflation topping 5%. The housing market has not had such an eventful 12 months, but unfortunately has declined almost as much as the stock market in the Northwest. Often when shares are struggling property becomes more attractive, as the physical nature of bricks and mortar makes investors feel more secure. As yet this had not happened and it is quite difficult to see property-recovering significantly in the next 12 months.
My reason for saying this is because although demand for houses is still reasonable and interest rates are at historically low levels other issues hold back the market. The big issues are the continuation of high levels of deposits required by lenders, and the tough underwriting methods that they now employ with lower income multiples being applied. Also lenders give little or no flexibility with regard to past credit glitches, and consider this with a very tough approach with regard to the self-employed. Housing transitions are now at half pre-credit crunch levels, and yet it looks possible that these figures will not increase this year if the euro zone crisis continues to haunt us.
I believe lenders are just protecting themselves and continued turbulence can see them cutting further the amount they lend. This could be achieved by even tighter underwriting than before. These actions would have the effect of freezing the housing market as people can’t move because they don’t meet mortgage criteria, and first time buyers just become disillusioned with the market as they see house prices fall. They may figure that the right thing to do is to step away from the market and continue to save and watch house prices fall further, then enter the market at a later date.
If we enter this house purchase strike phase, it could take us towards a spiral of house price falls. This spiral could lead to negative equity stopping even more people from moving on, with lenders tightening further. At this point we would have to hope that buy to let investors step in to underpin the market as yields on property should rise.
Overall I believe that even though house prices could fall further this year that historically it is not a bad time to buy but if you can do so comfortably. However don’t fret too much if you can’t, but continue to save as much as you can. I find it difficult to see much progress with prices this year so perhaps you could buy in the future with a bigger deposit and similar prices to today. However, as always crystal ball gazing can sometimes be very inaccurate as even the most shrewed investors can get it horribly wrong, for example John Paulson the American financier who made billions in the 2008 banking crisis has been crunched in 2011, having made total losses of 52% during 2011 by totally misreading the markets.
It is worth making an appointment with an Independent Financial Adviser who specialises in mortgages to see if remortgaging is right for you. Kieron Bassett Financial Services have two Independent Financial Advisers who specialise in mortgages. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
9th January 2012
“