Mortgage News

Despite the prospect of falling UK house prices, there remains some good news for Buy to Let tenants. Average rents are continuing to rise, buoyed by rising demand.

A key factor in the rising demand for rentable properties is the growth in immigration, especially from Eastern Europe. This means that with rising demand, the price of renting has continued to rise. According to Mortgage lender, Paragon Average rents were £11,066. This represents an annual increase of 10.2 per cent.

The rise in demand is not being met by a rise in supply. This is due to the general shortage of houses, but, also the reluctance of buy to let investors to increase investment in a potentially falling  property market. Therefore, a drop in UK house prices may not be matched by a fall in renting prices.

Sub Prime Buy to Let 

A problem looming on the horizon for many sub prime buy to let investors is the fact that many banks have reduced the range and scope of sub prime mortgages. The definition for a sub prime mortgage is anyone who has a record of mortgage defaulting, resulting in a CCJ (County Court Judgement). Because less sub prime mortgages are available, many buy to let investors will be forced to take out more expensive SVR loans, when their mortgage term expires. This gives buy to let investors another reason to sell.

see: Buy to let landlords fear they may have to sell 

Original post by Tejvan R Pettinger

Nationwide Building Society released their latest figures from the state of the UK Housing Market. These statistics suggest that house prices fell by 0.8%. It is the largest monthly drop since June 1995

Combined with other statistics and reports, it shows there has been a fundamental shift in the prospects of the UK housing market.

There is increased expectation that interest rates may be cut soon. One of the members of the Bank of England Monetary Policy Committee Mr Blanchflower has expressed his concern at the state of the UK economy. He is the strongest voice for lower interest rates.

Yesterday, Mr Blanchflower, was in Birmingham stating that the worst was yet to come for house prices and the housing market. - UK House prices set to drop (at icBirmingham)

However,

The title of this post is slightly misleading. Monthly changes in house prices can be volatile. House prices are still higher than this time last year. see this post:

• Are House Prices falling?- a guide to the complexities of the housing market statistics

Also, are falling House prices a bad thing?

Yesterday, I wrote that 2008 can still be a good time to buy a house 

The Independent expressed similar sentiments in their article on the housing market here 

Original post by Tejvan R Pettinger

Nationwide Building Society released their latest figures from the state of the UK Housing Market. These statistics suggest that house prices fell by 0.8%. It is the largest monthly drop since June 1995

Combined with other statistics and reports, it shows there has been a fundamental shift in the prospects of the UK housing market.

There is increased expectation that interest rates may be cut soon. One of the members of the Bank of England Monetary Policy Committee Mr Blanchflower has expressed his concern at the state of the UK economy. He is the strongest voice for lower interest rates.

Yesterday, Mr Blanchflower, was in Birmingham stating that the worst was yet to come for house prices and the housing market. - UK House prices set to drop (at icBirmingham)

However,

The title of this post is slightly misleading. Monthly changes in house prices can be volatile. House prices are still higher than this time last year. see this post:

• Are House Prices falling?- a guide to the complexities of the housing market statistics

Also, are falling House prices a bad thing?

Yesterday, I wrote that 2008 can still be a good time to buy a house 

The Independent expressed similar sentiments in their article on the housing market here 

Original post by Tejvan R Pettinger

Nationwide Building Society released their latest figures from the state of the UK Housing Market. These statistics suggest that house prices fell by 0.8%. It is the largest monthly drop since June 1995

Combined with other statistics and reports, it shows there has been a fundamental shift in the prospects of the UK housing market.

There is increased expectation that interest rates may be cut soon. One of the members of the Bank of England Monetary Policy Committee Mr Blanchflower has expressed his concern at the state of the UK economy. He is the strongest voice for lower interest rates.

Yesterday, Mr Blanchflower, was in Birmingham stating that the worst was yet to come for house prices and the housing market. - UK House prices set to drop (at icBirmingham)

However,

The title of this post is slightly misleading. Monthly changes in house prices can be volatile. House prices are still higher than this time last year. see this post:

• Are House Prices falling?- a guide to the complexities of the housing market statistics

Also, are falling House prices a bad thing?

Yesterday, I wrote that 2008 can still be a good time to buy a house 

The Independent expressed similar sentiments in their article on the housing market here 

Original post by Tejvan R Pettinger

The Buy to Let Housing market has grown in size and importance in recent years. The rapid growth in house prices have provided excellent returns for investors. However, there is concern that the boom period of the buy to let housing market is now over and 2008 could witness falling prices.

Buy to Let Housing Market in 2008

• House prices may start falling. See: Reasons house prices may fall.
• Interest rates are forecast to fall - Bank of England forecast interest rate cuts
• Despite dire forecasts of falling house prices. Many argue there are still good prospects for the buy to let sector. This is mainly due to rising cost of rents. - Buy To Let helps stabilise the market
• There has been a remarkable growth in buy to let mortgages in the past 8 years. Last year saw a 60 per cent increase in the number of buy to let mortgages from 44,000 to 69,000, in 2007
• A key issues is the extent of volatility in the buy to let sector. Some suggest buy to let investors will panic at the sign of falling house prices and look to cash in their gains at the top of the market. However, others argue that buy to let investors are often in the business for the long term. Capital growth is only one aspect of buy to let. The main criteria for buy to let investors is rent able income against mortgage payments and costs. Buy to let could threaten house prices
• Buy to Let specialist Paragon has issued a severe profits warning - see mortgage news

• Are UK House prices set to fall?
• UK Housing Market

Original post by Tejvan R Pettinger

France has been a popular destination for UK residents looking for a second house. Buying a house in France provides many benefits.

• House prices are much lower than in the UK.
• There is a greater potential for capital growth. The Ratio of House prices to income is 65% in France, but, 146% in Britain.
• Better weather

French House Prices

• Because of the potential in the French housing market, the past few years have seen strong house price growth. House prices have increased 210% in the past 12 years, since 1995. This has led to a great return for those British investors who have already bought a house in France.
• However, the prospects for future house price growth are less certain. These are some of the factors which will affect the future French Housing market
• Supply constraints are much lower in France than the UK. In 2006, a record 420,000 houses were built. (This compares to less than 200,000 new houses in the UK). Therefore, this glut of houses will definitely put downward pressure on house prices.
• Like any Country the price of French housing can vary depending on the usual factors such as location, state of repair. There are still many bargain in the countryside for houses that need some renovation.
• The New president Nicolas Sarkozy is said to favour homeownership. If there was a shift in French attitudes it would definitely encourage greater demand to buy houses. This might cause long term house price growth.

Related

• Getting a Mortgage for French properties
• UK Housing Market
• French Property Prices
  
• French Housing Bubble set to burst

Original post by Tejvan R Pettinger

Data on house prices are often unreliable. The government doesn’t actually have a national official house price statistics (it really ought to, given the extensive press and economic interest they generates)

However, despite the fact that there are conflicting reports, there are an increasing number of reports which suggest house prices in the UK are now starting to fall.

According to the Royal Institution of Chartered Surveyors House prices are falling at their fastest since mid-2005. Last month, was a bad month for house prices as higher interest rates increasingly started to bite. There was also a change in confidence and outlook caused by the problems at Northern Rock.

This survey by the Chartered surveyors comes a week after the Halifax building society reported a second consecutive month of falling house prices.

Although just to confuse the issue the Nationwide claim house prices are rising and have increased by 10% since this time last year.

Problems in measuring House Prices 

A note on Monthly falls and Yearly falls

When look at house price statistics it is important to be aware of the distinction between a monthly fall and a yearly fall.

For example, the Halifax may report house prices in October fell by 0.8%. However, if we compare October 2007 with October 2006, house prices have still risen by say 8.1%.

Therefore, we can experience a temporary fall in monthly prices but still have quite a positive annual % change.

The annual % change in house prices gives a more reliable indication, because it is not subject to monthly fluctuations. But, it also hides recent changes and developments in the UK housing market.

If you want to have a newspaper headline

“House Prices Collapse” you can always find some statistic to back you up. Therefore, it becomes a bit of a mind field in actually knowing what is happening to house prices.

Geographical differences. Sometimes house prices can fall significantly but be confined to certain areas of the country like say Central London (where house prices are more volatile) again using geographical based statistics can give a biased snapshot of UK house prices

guardian article on house price 

Original post by Tejvan R Pettinger

On my economics blog, I recently posted an article about whether the UK could experience a house price crash

On balance, I feel that a house price crash is unlikely.

• The economy is relatively strong
• House price growth has mainly been based on supply and demand dynamics
• Interest rates are unlikely to rise any further (for the medium term)
• The global credit crunch will continue to create problems, however, the UK housing market can remain strong, even if it is more difficult for people to get unconventional mortgages.

However, although I disagree with the pessimist’s predictions of house price falls of upto 20% it is quite clear that house price growth is slowing down quite considerably.

Many industrial analysts are reporting that house sales are slowing down and demand for new houses is much lower than this time last year. For example, home builder Hovis, predicted a fall in house prices of 3%. Price Waterhouse and Coopers, argue that house prices are 10% overvalued.

• Some arguments for a slowdown in house price growth
• Why house prices may continue to rise
  
• UK Housing Market

Original post by Tejvan R Pettinger

Recent evidence of a slowing UK housing market emerged.

Number of Mortgage approvals fell. According to the Bank of England, the number of mortgage approvals by UK banks fell to 102,000 per month. This is the lowest rate for over 2 years. see more at Bloomberg

House repossessions forecast to rise. The council of mortgage lenders forecast that the number of home repossessions would rise by 50% in the UK. This is due to rising interest costs and a fall in house price growth house repossessions at the Guardian

Prospects of Negative Equity - with house prices starting to fall and the number of home repossessions rising, first time buyers were warned about the prospects of negative equity. Negative equity is when the value of a house is less than the mortgage. In particular, first time buyers were warned about 100% mortgages and borrowing very high income multiples. between January 2006 and August 2007, 33,000 first-time buyers will have taken out 100% or more mortgages. the Guardian

Original post by Tejvan R Pettinger

With concerns over falling house prices and a potential imminent collapse in property prices, many people are worried about whether they should delay buying a house.

The IMF recently suggested UK house prices are overvalued by 50%. For example, they point to the fact house prices have risen faster than incomes and rent. However, this doesn’t mean house prices will collapse by 50%. Part of the reason for the rise in house prices is the fundamental shortage in supply compared to demand.

However, it is worth bearing in mind these factors:

• People have been predicting house price falls for the past 5 years. Since that time house prices have risen nearly 100%
• If house prices do fall, it is not the end of the world. (Whatever headlines in the Daily Mail may say)
• A fall in house prices are not necessarily a problem for homeowners. If you buy a house to live in, a fall in house prices doesn’t effect the cost of mortgage repayments. In fact a fall in house prices will probably enable interest rates to fall and make mortgage payments cheaper.
• If house prices fall and you need to move, don’t forget over house prices will be cheaper to buy.

If you are buying a house as a property investment, it is of course a different matter. A stagnating or falling housing market is not a good time to buy a second house.It would be better to wait until the market has changed direction. At the moment it is difficult to get sufficient rentable income to pay 130% of the mortgage repayments.

My advice is if you want to buy a house rather than renting, don’t let a potential fall in house prices put you off. As long as you can afford a mortgage and you are not over-stretching yourself it makes sense to buy a house rather than renting.

However, if you are planning to get a 100% mortgage in the hope house prices will rise, enabling you to remortgage I would be very cautious, try waiting and saving a deposit instead.

If you are buying a house as an investment, I feel the best buying opportunities have passed. Nevertheless in the long term, it is possible the housing market will continue to be a good investment. I don’t see the government addressing the fundamental shortage in supply in the near future. This is the main reason why house prices are so expensive

• Why House prices are so expensive in the UK

Original post by Tejvan R Pettinger