Property Ups And Downs To Come
Those in the industry are hoping that the property market is heading for a gentle correction, rather than a painful crash. There were signs of a slowdown before the credit crunch and the Northern Rock crisis so it is hoped that those problems can be absorbed into the previous trend. That trend was for a fall in asking prices (from Rightmove) and a drop in selling prices (Hometrack) in some areas – but not yet all. Rather than panic selling, there appears to be a feeling of ‘wait and see’ for most sellers and buyers. The underlying economy of the UK remains good with a growing gross domestic product and high employment, and there is still a shortage of housing in the country in the main.
There are some areas of concern, however.
Home Information Packs (HIPs) are proving unpopular. According to Rightmove there has been a 41% fall in the number of homes with four bedrooms or more being put up for sale since HIPs came into force on 1 August. This has had some effect on the market.
There has also been an oversupply of two-bedroom flats in some city centres. Aimed at buy-to-let mortgage investors, these have remained unsold as investors find it more difficult to get mortgages with the tightening of credit recently. Also, the two-bedroom flats do not quite suit the market of city centres, where one-bedroom flats may be preferable.
Problems in financial institutions in the City may lead to bonus cuts and job losses. If that happens then the prime-London market will feel the effects. The Royal Institution of Chartered Surveyors reckons there is a 20% chance that houses in super-prime-London will fall by 10% in the next year.
Fionnuala Earley, Nationwide's chief economist, agrees: "A prolonged financial market downturn would be uncomfortable given the importance of this sector to economic growth. Such a downturn would not only affect investment bankers but would also have negative knock-on effects for workers in law, accountancy and other professional services. The affect on London property prices could only be negative." Nevertheless, Ms Earley still forecasts prices outside the capital to go up by a modest 3% in 2008.
The advice for anyone who needs to buy a home is to continue with the process. Tracker mortgages are tipped currently, even though one or two banks have increased their tracker rates for new mortgages recently. Trackers are linked to the Bank of England’s base rate – currently at 5.75% after five rises since August 2006 – but there looks to be little chance of it going up to 6%, as the Bank won’t want to push consumer confidence any lower. Indeed some experts believe that the base rate will start to come down again soon, so being on a tracker would reap benefits from that.
As for the Northern Rock crisis, there appear to be concerns over the bank itself, but not for the wider mortgage market. Anyone looking for a mortgage now is unlikely to choose Northern Rock, but there are plenty of other lenders out there.
The main areas for concern are for the sub-prime mortgage market - those with poor credit histories or uncertain income. People in those situations will find mortgages harder to come by, and more expensive.
Published on September 28, 2007
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