Double dip property crash
June 28, 2010
The property price crash that homeowners were fearing may well be around the corner, the experts are saying
With the axing of the unpopular Hips (Home information packs), has resulted in the market being flooded with properties, and marked a turning point.
Property website Rightmove says that the abolition of the packs has caused a 22% rise in the number of properties hitting the market, as a result it says the average price of a property has hardly risen.
Now I appreciate that’s no fall. It may be a one-off effect caused by the removal of the packs, and in many ways it could be considered a sustainable rise.
But that’s argument doesn’t wash. It comes on the back of a 0.7% rise the previous month, so it constitutes a slowdown. The thing about the property market is that it works on faith, and if buyers see a slowdown they are more likely to haggle harder and push for a discount just in case the market falls.
Many more properties currently on the open market, means prospective house buyers are more likely to haggle due to the choice, in which this may continue to push house prices down.
Things could get a whole lot worse too. Surely the only thing propping up the market for over a year has been the rock bottom interest rates, but this may be a signal that the Bank of England may have to raise rates in order to control inflation.
That could easily turn a slowdown and a small downturn into a crash. Given that this is going to coincide with massive pay freezes and redundancies in the public sector, we could easily see this turn into the kind of property crash people take decades to recover from.
Home repossessions
June 28, 2010
A total of 10,500 home owners had their property repossessed during the three months to the end of March, 11% fewer than during the previous quarter, according to the Financial Services Authority.
There was a drop in the number of people who fell behind with their mortgage payments during the period. Around 40,500 people got into arrears during the first quarter, 2% fewer than during the previous three months.
The fall contributed to a further improvement in the total number of people who were in mortgage arrears for the third consecutive quarter, with 362,000 behind on their home loan, the equivalent of 3.23% of all mortgage holders.
Repossession levels have remained lower than expected during the economic downturn due to a combination of low interest rates, Government support schemes and increased forbearance by lenders.
The CML had previously forecast that 53,000 people would lose their homes this year; however, it has indicated that this prediction now looks “pessimistic” and is likely to be lower.
The figures from the FSA also showed there had been a steep fall in mortgage advances in the first quarter as activity in the housing market stalled due to a combination of bad weather, the end of the stamp duty holiday and uncertainty caused by the general election. .
Despite signs that lenders were loosening their lending criteria and making more products available for people with small deposits, only 2% of new advances went to people borrowing more than 90% of their home’s value.
Why house prices don’t always rise!
June 18, 2010
There was a time not that long ago when it seemed you couldn’t lose by investing in the UK property market.
Things have now changed, when the recession left millions of people’s dreams of capital appreciation in tatters, with many more struggling with the horrors of negative equity.
But why do house prices rise and fall as they do?
* The property market, like all capitalist markets the world over, is driven first and foremost by demand and supply.
* If there are six similar properties for sale on the same street, it stands to reason that a buyer choosing between them will have more chance of getting a good deal than someone else buying in an area where there are six buyers to every seller.
* Just like stocks and shares, the value of a property is also driven by sentiment, or in other words what people think it is – or will be – worth.
* A major factor is the availability of cash, or in most cases mortgage finance, to fund purchases – and this is what suddenly dried up when the credit crunch hit in summer 2007.
Then came the crash, knocking thousands of pounds off the value of the average property and leaving many of those who had bought at the top of the market stuck with homes worth much less than they had paid.
The consequences of this on the mortgage market are still clear to see today, with the top mortgage deals still coming with deposit requirements of 35% or 40% – a lot different from the 125% mortgages being offered just a few years ago.
This continued reluctance to lend, along with the ensuing recession that forced some homeowners to put properties on the market at rock-bottom prices, has kept the market subdued ever since.
Past figures show that at one point a home somewhere in the UK was being repossessed every 10 minutes.
So the market was being flooded with cheap properties at a time when buyers were scarce, due to both a lack of confidence in the housing market and economy as a whole, and a general lack of cash or mortgage finance.
Little wonder then that Nationwide’s House Price index for May 2010 revealed that even after many months of modest gains, prices remained 10% below the level they reached at the peak of the market in 2007.
Cash house buyers!
June 16, 2010
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Borrowers face new hurdles
June 9, 2010
Buyers returning to the housing market and homeowners trying to remortgage face an increasingly complex maze of rules and criteria imposed by mortgage lenders.
However, brokers have warned that people buying or remortgaging face a series of hurdles when trying to secure a home loan because of lenders’ ultra- cautious approach to approving deals.
Borrowers are still frequently hit by damaging and inaccurate down valuations — when a lender decides that your property is worth less than you thought it was — reducing the amount you can borrow, pushing up the cost of your mortgage or leading to loan rejection. Builders complain that buyers of new-build properties, favoured by first-time buyers, are particularly likely to face a down valuation in the current market.
Buyers also face a growing blacklist of properties, areas and even developments that are shunned by lenders.
Surveyors have warned that it is difficult to produce accurate house price estimates when there are so little transactions in the market.
Lenders often carry out “desktop valuations”, using automatic valuation models that guess how much a borrower’s property is worth using house price data and transaction figures.
Buyers who want a new-build flat face the greatest likelihood that a mortgage lender will cut the estimated value of a prospective home. A number of lenders insist that valuations of new-build properties are based on the estimated value of the home on the secondhand market. Builders argue that this is difficult to estimate accurately, created uncertainty and confusion for buyers.
Down valuations can hit borrowers with higher mortgage costs or lead to a loan rejection. Someone who needs to take out a mortgage worth £75,000 to purchase a property costing £100,000 will apply for a deal with a loan-to-value ratio of 75 per cent. However, if a valuation suggests that the house is only worth £95,000, the mortgage exceeds the loan-to-value tier. A lender that will not offer loans with a loan-to-value ratio of more than 75 per cent on new-build properties may reject the application. Other lenders might force the borrower to take a loan with a higher maximum loan-to-value ratio, leading to higher monthly repayments.
Borrowers who suffer from a down valuation may be able to appeal and apply for a second opinion from another surveyor. Lenders that conduct desktop valuations, such as Halifax and Woolwich, will send a valuer to conduct an internal and external assessment of the property, although borrowers are expected to pay the bill themselves. It is also possible to submit supporting information that suggests the original valuation was inaccurate, such as evidence of sales in the same street or new-build developments in the past three months.
HIPs were suspended from 21st May 2010
June 7, 2010
Home Information Packs (HIPs) will no longer be required for house sellers from 21st May 2010.
The costly packs were introduced in 2007 in England and Wales, despite strong opposition from the Royal Institution of Chartered Surveyors (RICS) and National Association of Estate Agents.
The final good-bye to the HIP involves legislative changes and the immediate reprieve takes the form of a suspension, although the Energy Performance Certificate will remain as it is required under European law.
Meanwhile, HIP providers face a very uncertain future; many have set up their own businesses or paid for their training and will no doubt be seeking compensation.
Finally, the recovering UK housing market may not benefit from a surge in speculative sellers that could follow the suspension of the HIP.
New instructions for sales are already outstripping new buyer enquiries, according to the RICS.
