Market Update

The property market has been very buoyant over recent weeks with strong levels of demand. Supply of new property to the market is steady but stock levels are tight and more property needs to come to the market in order to both satisfy demand and keep price inflation at sensible levels.

The latest Rightmove report showed that asking prices had increased by their highest ever monthly amount, a direct result of an imbalance between supply and demand and optimism over both the economy in general and the Government’s Help 2 Buy scheme.

Ensuring property is sensibly valued is key to a successful sale but many of our clients are being pleasantly surprised at the prices they have been able to obtain in today’s market.

The aforementioned second phase of Help 2 Buy sees the Government “guarantee” up to 20% of the purchase price of a new or second-hand property, enabling buyers to borrow up to 95% of the purchase price (if their incomes meet the lenders repayment criteria). This replicates the old mortgage indemnity guarantees that existed but instead of being backed by insurance it is being backed by the taxpayer.

It is estimated that the average age of first time buyers will fall by as much as six years as the time required to save a deposit will be reduced and those with good incomes but low equity will be able to move.

Help to Buy mortgage guarantees will be open for loans not only to first time buyers but also to existing homeowners, and be available on new and existing houses with a value of up to £600,000.

Because phase two of the Help 2 Buy scheme applies to all property, not just new homes, it will, almost certainly increase buyer demand and see many people stretch themselves significantly to get onto or higher up the property ladder.

Several recent surveys show many more people looking to move as a result of the Help 2 Buy scheme.

That is fine and will undoubtedly enable many more first time buyers and those second time movers with low equity to move. The issue however is that any increase in demand cannot be met by a similar increase in supply and therefore prices will inevitably rise. As prices rise, this will encourage even more people to take upward steps in the market and so a less than virtuous circle of buyers and buyer’s greed is likely to be created.

The issue for the market is less about demand and much more about supply. We are simply not building enough new homes and the lead time to do so is significant even if we had the desire and ability to do so.

One aspect that needs to be understood is that lenders do charge much higher interest rates on 95% loans than on 75% loans and so, even if the new scheme enables someone to purchase, the cost of doing so could be significantly increased. This factor may help reduce fears of a housing bubble being created.

A quick check on the internet as I wrote this article shows that interest rates on 95% loans can be up to 2% more expensive than on 75% loans. On a borrowing of £250,000, this would equate to over £400 a month of additional interest.

Taking professional advice is crucial and our mortgage advisers are fully conversant with Help 2 Buy and the overall mortgage market and will be pleased to discuss your personal circumstances and tailor the best solution for you.

Having outlined some concerns about Help 2 Buy, it will undoubtedly assist some to make moves they would otherwise be unable to make. Some new first time buyers may enter the market and those second steppers with low equity may find themselves able to make moves they would otherwise be unable to make.

The lettings market remains strong with many landlords growing their portfolios and with demand from tenants positive. As house prices move upwards, yields may fall slightly, but compared with most other forms of investment at the moment, the returns look good, particularly for landlords whose portfolios are being professionally managed.

The autumn looks set to be busy and the outlook for the end of the year and 2014 looks positive. With interest rates remaining low, now is an excellent time to be active in the property market and the team and myself shall be pleased to assist you.

Peter Lawrence