And Now For the Good News
In Sky News recently we heard that mortgage lending for house buyers was 19% higher during July this year than in the same month in 2008 suggesting the first material annual growth since early 2007. The number of first time buyers applying for loans also increased considerably, some 18%, giving hope that the battered character market is genuinely on the road to recovery.
Whilst some pundits extol the virtues of the low base rate others are anticipating a down turn in late 2009 and early 2010. What comes across loud and clear to character Pathways is that whilst the character market in the UK is nevertheless a real mixed bag at the moment with no one able to predict what will happen next, the forecast is a far rosier picture than the 8% fall for 2009 and flat line for 2010 as expected in Reuters June survey.
The latest surveys indicate that house prices have finally bottomed out and a slow return to growth is expected after the second quarter of 2010. The edges are rebuilding trust already with all the toxic debt they have, appearing more stable and already though we all know they are not out of the woods however, monthly mortgage approvals have increased already with the tightened lending criteria. Recent surveys also indicate that there are around a million first time buyers just waiting for increased confidence to encourage their entry into the market.
Bovis Homes confirmed a growing trend of stabilisation in August with Bellway and Taylor Wimpey posting positive trading statements in spite of of the forecast decline for completions in 2009. Prospects for house builders are optimistic in the long term with a current under supply of housing, low interest rates and higher employment being likely to increase need in the second half of 2010.
The global crisis of 2008 to 2009 has produced a enormous shortfall of new build stock in the UK market making the period up to 2016 the perfect time for buying ‘off plan’ as more and more developers are going to be stepping back into the market to fill the ever rising need in order to obtain loans to start building. This in turn method that they will be willing to incentivise ‘off plan’ sales as quickly as possible by making them as attractive to the buyer as they can. In turn, all character sold against good substantial fundamentals will increase in value as the market begins to move again with the mass entry of the first time buyers.
If you are considering buying, ‘off plan’ could be the way for you to dramatically increase your profit as long as you remember that the earlier you get in, the better the deal will be and the less risk you’ll take as long as you focus on the fundamentals like shops, schools, transport links, employment opportunities and investment. With ‘off plan’ you will be buying character at rock bottom prices with an upward trend in the character market that is on your side right now.
In the meantime home owners need to be aware of the expected ‘double dip’ that could hit in early 2010 should the record low interest rates of 0.5% currently being enjoyed be increased. If this happens, the borrowers who’ve survived this far because of the low loan rates will be pushed already further increasing repossessions and forced sales which will add more supply onto the market and could push house prices down if not tempered by the entry of the first time buyers.
The good news is that for those in the market to buy it’s a breathing space to make the right choice knowing that you can offer between 20 – 25% lower than the current asking market price and probably obtain a great deal on your mortgage to boot. The latest HSBC’s 1.99% home loan offer has produced a lot of speculation and it’s however to be seen whether or not the other lenders follow suite. What is certain is that the Bank of England will be forced to keep the interest rate comparatively low throughout the first quarter of 2010 to balance low inflation and expected tax rises.
Looking at the biggest price improvements among character types you’d be well placed to look at terraced houses as they are registering rises of 3.2% against last July followed closely by semi-detached and flats.
“Be greedy when everyone is fearful, be fearful when everyone is greedy.”
Warren Buffett – U.S. investor, businessman, and philanthropist.
There’s also been a strong surge in the buy to let market in 2009 as home owners are unable to sell their similarities for the expected return and investors are snapping up bargains to rent out until the current recession breaks. The Association of Residential Letting Agents (ARLA) revealed data of the types of similarities being snapped up on the buy to let market as:
Semi detached 68%
Terraced houses 52%
If you are in the enviable position of having cash flow to buy then do it now before the cycle swings and take a long hard look at off plan buys. (We will be taking a more in thoroughness look at this topic in November)
Some lenders are already offering let to buy schemes where by you are allowed to borrow money to buy a new home to live in whilst your existing house is let out to tenants. You can borrow without your existing mortgage being factored in as long your rent on that house covers the monthly payments! In this way you increase your character ownership but, if you’re downsizing, you reduce your monthly costs.
Those of you sitting tight can shop around for fixed mortgage deals now ensuring that you enjoy the benefits of today’s low base rate for a few more years to come. When your current mortgage deal expires don’t just move to the lenders standard variable rate, shop around and see what’s on offer first. A fixed rate mortgage offers peace of mind for a set number of years.
With the lull before the expansion nevertheless ahead for the next nine months rather think about adding value to your home and if you do remortgage factor in those extras such as a conservatory or another bedroom whilst the interest rates are in your favour. Ultimately adding value will pay off when it comes to selling. Nationwide Building Society and RICS tell us that a loft conversion adds the most value to a home these days at 21% additional whilst a new kitchen or conservatory will only add at best 4 – 6%!
“Experts are not expecting mortgage rates to increase during the remainder of 2009 but as to what will happen next year, the picture is not quite so clear. If you have some slack in your monthly budget to absorb any rate rises next year, HSBC’s is an attractive offer”
Andrew Hagger – Moneynet.co.uk
The headline rate may be attractive but the deal is reserved for those with 40% equity in their homes and has an arrangement fee of â,¤1199. The rate goes up the less equity you have. However there are a myriad of attractive offers out there at present as the squeeze continues and any savvy homeowner should take advantage of them.
In the meantime, we’d recommend doing your due diligence on the character market whilst battening down the hatches for a little bit longer, looking at adding value to your character before putting it on the market and considering taking advantage of the situation with ‘off plan’ buys and buys to let. However, if you’re a first time buyer or have investment cash – buy, buy, buy!