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.
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.
On 5th October 2006, The Bank of England’s monetary policy committee kept interest rates at its current level of 4.75%. With predictions of an interest rate increase for next month, it looks like a rocky road ahead for first time buyers once again. Whilst trying our best efforts to save every penny for that perfect home whilst property prices continue to rise.
For first time buyers’; jumping onto the property ladder just doesn’t seem to get any easier. However there is light at end of the tunnel, where first time buyers are concerned they do have a certain degree of advantages. Firstly interest rates have been their lowest for the past 30 years making it a lot cheaper to borrow nowadays and high street banks providing you competitive offers in order to attract your custom, am sure there is a good deal out there in the market for us all. In fact most first time buyers have no chain involved, this means they are not waiting for their own property to be sold in order to move in the new, therefore a quicker transaction can be made with less hassle, this will no doubt make you more appealing to home sellers.
This means all you need to do now is look for the right property in the right location and the right price tag! We will be posting some of the most sought after property developments in Manchester!
Good lucking property hunting!
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