UK Property
by theWatchdog.co.uk

 

Information on the UK Property Market

The property market within the UK has been the subject of debate and discussion for many decades. In more recent years the buy-to-let market has led to a huge increase in property purchases for investment, not just for those will a few million to invest, but for almost anyone who can obtain a mortgage.

There are many reasons that have resulted in the expanding UK property market, these include private investors who see property as an alternative form of future pension income, then there is the rising population fueled largely by the expansion of the EU, and finally there is bank base rates which have been favorable to property investors in recent years.

But things can and will change, interest rates change frequently, the population growth will eventually slow down, and the government could change taxation and regulation to alter the dynamics of the UK property market.

What this web site aims to do is provide information on the UK property market and to provide useful resources to help people to optimise their investment choices.

June 2008 update

With increasing oil and food prices there is no sign of inflation easing any time soon, these factors were again cited by the Bank of England as it maintained base rates at 5% fearing any reduction could trigger higher inflation. Some economists have even talked about the risk of stagflation affecting the UK economy - this is where we have a combination of high inflation and a fall in economic growth. All the signs are that we will not see any sort-medium term reductions in bank base rates.

(Almost) irrespective of the UK economic situation there are no signs of the bank lending situation improving with effective mortgage rates increasing (in particular within the buy-to-let market) as banks continue to be unwilling to take on more lending. There was also the debacle surrounding Bradford and Bingley (B&B), a major player in the UK buy to let market. B&B struggled to raise cash with the result that other UK banks took up shares to maintain confidence in the banking system.

May 2008 update

As many predicted the Bank of England held the base rate at 5%, largely because of inflation fears. Immediately following the Bank of England's decision not to cut rates in May there were many analysts predicting a cut of 0.25% in June 2008, with at least one more cut in rates before the end of 2008. But then came the major announcement from Mervyn King (Bank of England Governor) that inflation was expected to increase in 2008, with an expectation that it would reach 3.7%. Mervyn King also added that we could expect a continued period of economic difficulty in 2008 and 2009. This announcement then led analysts to report that we may not see any further cuts in base rates before 2010.

The key issue for home owners is what this means for mortgage rates. For the last few years it has been quite easy to take out a new mortgage (or remortgage) at interest rates at or below the bank base rate, this has been largely due to banks targeting market share. Going forward, at least for the next few years, it is going to be more the exception to find a mortgage at or below bank base rates. The conjecture is that banks will start to maintain higher margins over base rates, so maybe the days of 'cheap lending' are history?

On another note, there have been some sensationalist articles published, such as the housing market worst for 30 years, these headlines can be misleading. For example, in the 1990s property slump the number of repossessions peaked at around 75,000 in 1991, and totalled around 345,000 between 1990 and 1995. In 2007 the number of repossessions were less than 30,000 with many analysts suggesting a 50% increase for 2008, this is well below the 1990s figures. So, yes we are in a period of house price correction, but maybe not on the same scale as was experienced in the 1990s. Time will tell!

One last comment for this month. Up until now we have been hearing from the Government that there will not be a property market crash, but then came that unfortunate oversight. The housing minister, Caroline Flint, unintentionally leaked her briefing notes stating the in 2008 property prices would fall by 5% to 10%. If the effect of 3.7% inflation is added into this that would mean 'real' price falls of 8.7% to 13.7%

April 2008 update

So you thought March 2008 was a bad month. In April 2008 some analysts are now predicting property prices will fall by as much as 20% or more. Even the IMF (International Monetary Fund) published a press release suggesting the UK property prices were going to fall. This is very bad news indeed. With lenders now demanding 10% to 20% deposit for a mortgage, those who took out mortgages in the last year or two could find that with prices falling there is no option to remortgage as they have little or no equity left in their property.

RICS also published a report in April with a survey identifying that 78% of its members were experiencing falling prices in Q1 of 2008. The worst affected area was identified as East Midlands, the least affected area was Scotland. This is more bad news for home owners. Lets hope the banks get some liquidity soon so that mortgage lending becomes a little easier and the impact on property prices minimised.

Ending on some good news, the Bank of England did reduce base rates by 0.25% to 5%. All we need now is for banks to pass on the lower rates to borrowers. Lets hope we start to see this happen in the next month or two!

March 2008 update

This will be remembered as the month when the credit crunch really started to take effect on the UK property market. Many banks started to withdraw 'attractive' mortgage deals simply because they did not have the funds to lend, the credit crunch had hit with a big thump.

But there was more bad news for those wanting to take out a new mortgage, suddenly your credit rating may be an issue in taking out a mortgage. This is because lenders were now being far more selective on who they lend to. So if you were one of those customers who had just come out of a fixed rate deal at 4.99% you now find yourself on the lenders standard variable rate of 7% or higher and no chance to remortgage elsewhere. In effect your mortgage payments increase by 40% without any option to refinance on a more competitive rate. Ouch!

February 2008 update

What a month it has turned out to be. The Bank of England chose not to cut rates this month as fears of inflation take centre stage. But, much of this inflation is form higher fuel costs - which is going to be a factor for many years to come as demand exceeds supply.

RICS subsequently stated their concerns for the UK housing market with an increased number of surveyors (now over 50%) identifying house price falls in January 2008. In part this is put down to the tightening of mortgages and home loans, but there is also the underlying factor of historically high house prices.

No one knows for sure what is going to happen to the UK housing market this year however a major factor is economic growth, providing the UK economy keeps growing and we do not enter a downturn in employment then it may just be a short-term bumpy ride for property prices.

On the positive side for the housing market, whilst many economists are now suggesting there will not be a UK base rate cut until May 2008, many are also predicting cuts of up to 1% over the next 12 months. We shall wait and see!

January 2008 update

The USA announcement of a 0.75% cut in lending rates took the markets by surprise, but it will take time before we see what longer term impact this will have. Some analysts are currently forecasting that there will be a 0.25% cut in the UK base rate in February, followed by a further 0.25% cut in March or April. The key factor defining how much this will help borrowers is what the lenders do. As posted earlier, many have loses to recover, they also have to borrow money at the inter-bank lending rate (LIBOR).

So what does this mean for the borrower?

In short it is good news, these rate cuts will eventually feed through and lower the actual mortgage lending rates. BUT, for those with adverse credit history there will be less benefit in that they will still find it difficult to pull away from the SVR (Standard Variable Rate) charged by lenders - these are almost always higher than the interest rates offered to new borrowers or those with good credit history who can change mortgage deals with their existing lender.

And what about the property market?

There are still some fundamentals in the UK property market to be aware of; firstly the positives which are a shortage of homes and interest rates trending down, these are what will help to maintain prices; secondly there are the negatives, these are the relatively high prices making homes unaffordable for many, and then there is the increased rate of repossessions which will bring more properties on the market at a discounted price.

In summary, the news in January is relatively good for the UK property market, but it is not enough to prevent house price corrections, in particular in areas where properties are over-valued against the fundamental of local affordability.

December 2007 update

The recent announcement of a quarter percent drop in bank base rates is a glimmer of hope for most home owners but it is just that, a glimmer of hope. What everyone is really hoping for is further cuts in the base rate in 2008, with some suggesting that half a percent drop is likely during the year.

For those coming onto the housing ladder this will be a big help, and for many people with standard variable rate (SVR), discount or tracker rate mortgages this will also be good news. But, as we posted earlier, it is not good news for everyone. Many lenders who had originally provided a fixed term deal, such as a fixed term tracker or fixed interest rate, are now taking the stance that your mortgage will switch to a higher SVR mortgage.

For some people the answer is simple, you vote with your feet and move to a new mortgage provider. But for others its not that easy, if you have a poor credit history it will become increasingly difficult to find mortgage providers that will take you on, let alone provide you with one of their 'new attractive deals'. The upshot is that for those with poor credit history and just coming out of a fixed term deal, there is a bumpy ride ahead.

November 2007 update

There has been some good news, economists are now starting to predict that there will be a fall in interest rates in 2008, possibly 0.5% or more. For those with a good credit history this should mean that they will find some better mortgage rate deals. However many are also predicting that lenders will not pass on much (or any) of the forecasted fall in interest rates, this is because many lenders still have losses to write off from the sub-prime failures.

The upshot is that anyone with 'less than good' credit history could find it increasingly difficult to find good mortgage deals, thus when they exit their discounted and fixed rate deals they may find themselves trapped with higher 'standard variable rate' mortgages.

As for property prices, much will depend on first time buyers entering the market and the ability for people to move up to a higher value property. Economists are predicting that property prices will fall in some parts of the country and within certain price bands (e.g. below £350,000) there will be a bigger impact. But, falls may not be that great with some forecasters suggesting that prices may stay flat with any effective fall being relative to not keeping up with annual inflation rates of around 2%.

October 2007 update

Following the recent fall-out from the sub-prime market in USA and the virtual collapse on UK's Northern Rock there has been some more bad news for borrowers.

An influential group of UK economists are now predicting higher costs of borrowing for those with an adverse credit history, this is in addition to any movement on bank base rates. This approach by the lenders will help to mitigate future bad debts and to some degree help reduce losses from previous sub-prime lending.

The outcome of such a move by lenders will no doubt impact the housing market as it will effectively cut out a significant number of potential buyers who will not be able to afford the higher costs of borrowing.

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