http://news.ft.com/cms/s/f549c340-7c42-11d9-8992-00000e2511c8.html
House prices edge up but signals still mixed
By Josephine Cumbo
Published: February 11 2005 15:44 | Last updated: February 11 2005 15:44
Those who don't believe that the housing bubble is about to burst will be cheered by data from two of the country's largest mortgage lenders. Halifax, the country's largest mortgage lender, and rival Nationwide, both reported small gains in house prices rises in January, with the building society saying the market was poised for a spring revival
The latest data have been interpreted as a measured slowdown and as a further sign of market stability.
But it wasn't enough to silence the bears who remain convinced that house prices are still on track for steep falls of up to 25 per cent in some parts of the country.
Capital Economics, one of the most gloomy voices, is sticking to its forecast that property prices will fall 20 per cent nationwide from 2004 to 2007, and was not swayed by the latest data.
“For a start, housing market data are volatile and the first quarter is traditionally a busy period for the market,” the consultancy explained.
“The bigger picture remains one in which housing is significantly overcalculated and where higher interest rates have produced a significant deterioration in affordability for new buyers over the past year.”
The hardest hit regions, according to Capital Economics, will be the north, south west, east Midlands and Wales all of which have seen stellar growth in house prices. London, the south east and Northern Ireland are forecast to fall by 15-16 per cent. Scotland is set for the softest fall of about 10 per cent.
If Capital Economics is right, then then about 300,000 property owners could end up with negative equity, where their mortgage loans exceed the value of their property.
The latest generation of homeowners, have no experience of negative equity. The last major bout of negative equity was in the late 1980s, when more than 1m were trapped.
While certainly not widespread, there have been some signs of negative equity appearing in the remortgage market, mortgage advisers report.
“There have been down valuations in places such as Swindon,” says David Hollingworth, of brokers London and Country.
Hollingworth says with the housing outlook unclear, those hoping to get on the property ladder should not bank on property value rises bailing them out.
“Those who are expecting to move house again in the short-term cannot expect house price inflation to improve their loan-to-value ratio and their equity levels,” he says.
Those with no or low deposits have most to fear as they often overstretch themselves to get on the property ladder.
“If you can afford it is is always worth saving a deposit of at least 5 per cent as you get more choice with mortgage deals,” Hollingworth says.
Financial advisers say those looking to get on the market should steer clear of 100 per cent or above mortgage deals, which are now becoming more widely available. Mortgages which stretch to 130 per cent of the property price and which are targeted at househunters who cannot cover stamp duty and legal fees, have been criticised for plunging homeowners into negative equity right from the start.
“You would have to be nuts to take out that sort of mortgage,” says Ruth Whitehead, an independent financial adviser.
”If you are borrowing 130 per cent, you just haven't got enough money or you are paying too much for your property.”
Other tips to protect your position in a downturn, say advisers, would be to make overpayments on your mortgage. If you are a first-time buyer, try enlisting the help of a family member with a deposit, or clubbing together friends to buy a property to keep affordability at reasonable levels.
Those hoping to get a buy-to-let investment should think of their property as a long-term investment, making short-term corrections less relevant.
While the calls of the doomsters are still resonating, there are others who are seeing encouraging signs that the market is more resilient than expected.
Ray Boulger, senior technical manager of mortgages with Charcol, the brokers, says real estate agents are seeing an increase in footfall, which is surprising so early in the year.
Given this, he says he is revising his estimate of a 4 per cent rise in house prices for 2005.
“My main concern now is that this estimate will prove conservative,” he says.
But there will be some property speculators who will lose out if Boulger's forecasts prove correct.
Those who last year gambled on a sharp fall in house prices with spread betting firm IG Index, will have a nervous wait until March for the Halifax quarterly house price index, which will determine their bets.
With an average wager of £250,000, they will be praying that the bears are right.
House prices edge up but signals still mixed
By Josephine Cumbo
Published: February 11 2005 15:44 | Last updated: February 11 2005 15:44
Those who don't believe that the housing bubble is about to burst will be cheered by data from two of the country's largest mortgage lenders. Halifax, the country's largest mortgage lender, and rival Nationwide, both reported small gains in house prices rises in January, with the building society saying the market was poised for a spring revival
The latest data have been interpreted as a measured slowdown and as a further sign of market stability.
But it wasn't enough to silence the bears who remain convinced that house prices are still on track for steep falls of up to 25 per cent in some parts of the country.
Capital Economics, one of the most gloomy voices, is sticking to its forecast that property prices will fall 20 per cent nationwide from 2004 to 2007, and was not swayed by the latest data.
“For a start, housing market data are volatile and the first quarter is traditionally a busy period for the market,” the consultancy explained.
“The bigger picture remains one in which housing is significantly overcalculated and where higher interest rates have produced a significant deterioration in affordability for new buyers over the past year.”
The hardest hit regions, according to Capital Economics, will be the north, south west, east Midlands and Wales all of which have seen stellar growth in house prices. London, the south east and Northern Ireland are forecast to fall by 15-16 per cent. Scotland is set for the softest fall of about 10 per cent.
If Capital Economics is right, then then about 300,000 property owners could end up with negative equity, where their mortgage loans exceed the value of their property.
The latest generation of homeowners, have no experience of negative equity. The last major bout of negative equity was in the late 1980s, when more than 1m were trapped.
While certainly not widespread, there have been some signs of negative equity appearing in the remortgage market, mortgage advisers report.
“There have been down valuations in places such as Swindon,” says David Hollingworth, of brokers London and Country.
Hollingworth says with the housing outlook unclear, those hoping to get on the property ladder should not bank on property value rises bailing them out.
“Those who are expecting to move house again in the short-term cannot expect house price inflation to improve their loan-to-value ratio and their equity levels,” he says.
Those with no or low deposits have most to fear as they often overstretch themselves to get on the property ladder.
“If you can afford it is is always worth saving a deposit of at least 5 per cent as you get more choice with mortgage deals,” Hollingworth says.
Financial advisers say those looking to get on the market should steer clear of 100 per cent or above mortgage deals, which are now becoming more widely available. Mortgages which stretch to 130 per cent of the property price and which are targeted at househunters who cannot cover stamp duty and legal fees, have been criticised for plunging homeowners into negative equity right from the start.
“You would have to be nuts to take out that sort of mortgage,” says Ruth Whitehead, an independent financial adviser.
”If you are borrowing 130 per cent, you just haven't got enough money or you are paying too much for your property.”
Other tips to protect your position in a downturn, say advisers, would be to make overpayments on your mortgage. If you are a first-time buyer, try enlisting the help of a family member with a deposit, or clubbing together friends to buy a property to keep affordability at reasonable levels.
Those hoping to get a buy-to-let investment should think of their property as a long-term investment, making short-term corrections less relevant.
While the calls of the doomsters are still resonating, there are others who are seeing encouraging signs that the market is more resilient than expected.
Ray Boulger, senior technical manager of mortgages with Charcol, the brokers, says real estate agents are seeing an increase in footfall, which is surprising so early in the year.
Given this, he says he is revising his estimate of a 4 per cent rise in house prices for 2005.
“My main concern now is that this estimate will prove conservative,” he says.
But there will be some property speculators who will lose out if Boulger's forecasts prove correct.
Those who last year gambled on a sharp fall in house prices with spread betting firm IG Index, will have a nervous wait until March for the Halifax quarterly house price index, which will determine their bets.
With an average wager of £250,000, they will be praying that the bears are right.
