Monthly Archive for May, 2008

Interest Rates Cut & Fall in Property Prices – Good Combination?

Published
by
Property Know Team
on May 26, 2008
in Property Know
. 0 Comments

A rocky road ahead, like most of us predicted the housing market is slowing down, the property craze seems to have run its course and the bubble is about to burst. For many of us we have witnessed a turn in the economy. With the current economic situation in terms of the credit crunch it is affecting mortgage lenders there is no question about that.  The credit crunch in the US has had a huge effect in the UK, there have been stricter controls to whom banks lend to, there has been a steep drop in mortgage lending, with less than 3000 products offered to consumers today compared to May 2007 in which there were as much as 11,000 products. This has made it increasingly difficult for first time buyers to get on the property ladder as they will have to save a lot more for deposits or wait till they get a better paying job but waiting for that could be too late. As more of us are watching our spending carefully, there seems to be fewer buyers out there and this will eventually cause an excessive supply of homes with a lack of demand, which could result in the price of properties continuing to fall dramatically.

Another blow to our pockets is the intensity of the cost of living, noticeably the price hikes in everyday essentials such as petrol and food, with this in mind many of us are holding back, that means stepping away from the property market, keeping every penny in our pockets and being extremely conservative with our spending. It looks set that the UK is about to follow suit of the Americans and possibly head towards a recession.

Although the government has tried to stimulate spending within the economy by cutting interest rates to 5%, this may not necessarily improve the situation within the property market for home owners. Reduced interest rates as well as declining house prices, has not boosted spending or maintained property value which has had a knock on effect on the wealth effect in which people perceive themselves to be richer but in this case are worse off, in which case the wealth effect is playing in the opposite direction of the fall in house prices. An example of this is when, with a £100k mortgage and a drop of 0.25% in interest rates would lead to fall in monthly payments of £21. On the other hand a drop in house prices of 0.25% a month would lead to a loss of equity of roughly £250 on a £100,000 property. The home owner ends up paying £21 less then usual a month but the house price drops makes the interest rate cut redundant making the home owner lose equity in the long run.

With the current economic state, getting a mortgage has become incredibly difficult as lenders have become quite demanding to who they will offer mortgages to and when they do offer them, the rate will not be cheap. Despite this, its not all bad news, as property prices seem to be unstable, more people are turning to renting, this new trend has increased rental prices for landlords and seen the sales of buy to let market rise in the past few months.

London Property Prices: Are they dropping?

Published
by
Property Know Team
on May 25, 2008
in London Property Market
. 2 Comments

There is currently a great amount of speculation in the London Property Market. Will it drop? Has it dropped? Is it dropping? In short the answer, is yes - certain parts of London have dropped in price, however Central London prices will hold strong.

Following up from a previous post “30 Year Low for Property Sales” talks about property sales in the UK dropping and that asking prices have had to been dropped. And we at the London Property Market side, completely agree.

We have always held to the opinion that the best place to invest is in Central London (places such as South Kensington, Queensway, Notting Hill Gate, Knights Bridge, Regents Park, St Johns Wood etc). If you look at that specific part of Central London, the prices have not changed much compared to the rest of the UK and Greater parts of London.

Why is that?

Lets look at the Supply and Demand, in Central London it is a known fact there is NO MORE LAND to build property on. So supply will pretty much or less stay the same, however demand will always increase (due to population growth, it is Central London where people want to live, Foreign Investment etc). So even if there is a dip in the local economy, there will be foreign investment to pump into the London Property Market. Demand will be increasing, and supply will stay the same - hence prices will increase! The hardest thing in buying in Central London is that the “barriers of entry” are extremely high. To get a decent 400-500 sq/ft 1 bedroom apartment, you will most likely be looking for a minimum of £375, 000 and go up to well the millions!

How about outside Central London?

The problem about outside Central London (mainly Zone 2 onwards) is that there is still Land to develop properties. Lets take Canary Wharf for example, which was a “boom” zone for buyers and investors. But if you look at the Canary Wharfs Property Market, owners are having problems to cover their mortgage payments and value of their properties are depreciating! And why is that? There is so much development that supply in Canary Wharf keeps on increasing - so it can meet demand. So prices are either stable or going to decrease due to Supply over lapping Demand. This is the current situation.

So just be very careful when you invest in property at the moment. The markets are soft in many areas in the UK, so you will have more chance of getting a good deal. In Central London, throw a bit more caution.

All the best!

30 Year Low for Property Sales

Published
by
Property Know Team
on May 25, 2008
in Property Know
. 1 Comment

Just recently it has been predicted that the number of properties sold in the UK this year will be at its lowest for 30 years. Which is approximately 30% lower then 2007.

This prediction was made by a housing expert by the name of Richard Donnell. He made this prediction as an uncertain housing market is bringing about many would be first time buyers to wait and observe the market in case prices drop even further. We all know that the market is stabilizing and not booming as it once was. Don’t get me wrong its not totally flopped but a friend of mines apartments market value dropped £40,000 in the space of 3 months, it’s a good job they were buying to live and not buying to let. With these gloomy forecast properties are staying on much longer then they used too regardless if they are excellent buys the market is just so unpredictable nowadays it just knocks all the confidence out of the most poised buyer.

Another recent announcement from the council of mortgage lenders to dampen our spirits, they are predicting that there will be a 7% fall in prices in 2008.These announcements are like air raid sirens in the property world, reading from a newspaper a home seller was just finding impossible to get any interest to sell. They had to reduce asking prices by 15% to even get the faintest of interest. Eventually when they did get interest potential buyers are just sitting back and waiting for more house price falls and cashing in when they get cheaper. This is proving to be effective for the buyers but for the sellers some just can’t afford to cut prices. With more people renting instead of buying its making sellers jobs harder ten fold, making properties on the market stay for much longer and some just not being sold at all. One estate agent believes that house prices will drop by at least another 5% this year.

For sale board are just not coming down