Housing market predictions for 2012
The saying goes that moving house is the third most stressful event in life after death and divorce. Of course, whoever first made that observation was talking about the pre-credit crunch days. Since the economic meltdown, moving house must be edging closer to the top spot.
With prices falling, bank lending criteria tightening and mortgages for first-time buyers becoming the stuff of legend, the property market has been bleak.
But will 2012 be a better year for the market?
Not according to Capital Economics. The research consultancy expects house prices to decline by 5% in 2012. "We think economic growth will be flat in 2012 as a whole, and that there is a high chance of another recession," warns economist Paul Diggle. "There are few signs that lenders will loosen their lending criteria.
Against this background, there's little chance of a meaningful increase in mortgage lending and housing market transactions. However, a rise in unemployment should see more properties being brought to the market."
Diggle makes a good point. In late 2011, the Office for National Statistics warned of an increase in redundancies. It reported that 43% (292,000) of people leaving their jobs in 2011 did so as a result of redundancy. What's more, debt charity the Consumer Credit Counselling Service warned that people made redundant would struggle to repay their debts, including their mortgages.
SOUND SELLING STRATEGY
If prices fall in line with Capital Economics' forecast, homeowners forced to sell their properties - either because they can no longer afford it or because they simply need to move - may have to sell their property at prices way below what they had hoped for. If you find yourself in this position, there are things you can do to improve your situation.
Andrew Baddeley-Chappell, head of mortgage strategy and policy at Nationwide, says it's important to be realistic. "The best advice is always to do all you can to make your property as appealing to as many potential buyers as possible and work out the best strategy for getting the best possible price for your property," he says.
"Allow for the process to take longer than you would like and be realistic about what you can expect to get." People selling because they have to move should do their best to jump up a rung on the property ladder with their next purchase, says Ed Mead, a director at estate agent Douglas and Gordon, because trading up is easier in a falling market.
"You might lose on the sale, but gain more on a purchase," he says. "Say you have a £250,000 flat and want to buy a £450,000 house. The flat might drop £50,000, but the house might well fall by double that."
GET IN EARLY
If your property is worth less than £250,000 and you need to sell, get it on the market early in the year. Until 25 March 2012, first-time buyers purchasing a home worth less than £250,000 won't have to pay stamp duty. So there's a chance there will be a lift in market activity as the stamp duty 'holiday' deadline looms. One sector that is expected to do well in 2012 is buy-to-let, a market that revived in 2011.
For anyone who can afford to invest in property the future looks bright. "The signs are already clear that 2012 will be a strong year for buy-to-let investors," says David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains.
"If you're thinking of investing in property, doing so in the next six months is an excellent idea, as the parlous state of the recovery makes an interest rate hike unlikely before mid-2012 and mortgage rates will thus stay at rock bottom. Those waiting for rates to dip lower should not be fooled. Mortgage rates don't have much further to fall. Now is the time to invest if you have a large enough deposit."
Getting together a big deposit seems to be the main hurdle faced by would-be buyers, whether they are buy-to-let investors or owner occupiers, and that seems unlikely to change. "Increasing competition in the mortgage market has resulted in a greater choice of affordable mortgage products on better terms, but the future remains uncertain," says Stuart Law, chief executive of property investment specialist Assetz.
"The eurozone crisis could have a significant impact on UK banks and limit the amount they are able to lend, resulting in a temporary further tightening of lending criteria and mortgage availability." Baddeley-Chappell agrees. He predicts that net lending in 2012 will remain "close to zero". The mortgage market isn't helped by the fact that the future for interest rates is uncertain.
According to a Reuters poll of 52 economists, the latest predictions are that the first rise will not be seen until 2013 at the earliest.
SMART MORTGAGE MOVES
If there are unlikely to be any changes in 2012, should homeowners be remortgaging?
"Interest rates are unlikely to rise significantly over the medium term, so we would advise homeowners to opt for a tracker mortgage at this time," says Law. "However, the economy might grow faster than predicted and if that happens interest rates will quickly follow suit. We would always suggest that those who could not afford higher monthly payments choose one of the fixed-rate deals that are currently available at historically low rates."
Property expert Henry Pryor believes people should consider locking-in the current low interest rates "if [they] can find a competitive five-year fixed-rate deal." If homeowners think they've had it bad, they can at least console themselves with the fact that they are more fortunate than first-time buyers. With deposits of at least 10% now required, most potential buyers find themselves out in the cold.
Shockingly, a study by Smart New Homes found that 10% of first-time buyers planned to borrow on credit cards or take out bank loans to fund the deposits required by lenders. Law believes next year will be better for first-time buyers, with more high loan-to-value mortgage products and shared equity schemes becoming available. The figures appear to back up his optimism. According to Moneyfacts, 265 mortgage deals are currently available to first-time buyers, compared with 172 last November.
If there is to be more activity in 2012, house buyers and sellers will need to be more adaptable - by accepting that 20% deposits are, for now, the norm or understanding that house prices are not what they were.
"We are continuing to see the gap between asking prices and offer prices narrow as people become more attuned to the new environment," says Andrew Montlake, director at mortgage brokerage Coreco.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.