Is now a good time to get on the property ladder?
Two months of house price falls have sparked fears of negative equity and even a housing market crash but falling prices could be good news not only for first-time buyers but also for the housing market at large.
Research by Rightmove reveals a 0.8% drop on the average asking price in January. The online estate agent says this fall is less than that seen in December, when asking prices were down 3.2%, and could indicate a price stabilisation.
Miles Shipside, commercial director at Rightmove, says buyers are taking advantage of falling asking prices, which is actually giving the market a helping hand to recovery.
He adds: "Some home buyers are now able to find properties that have fallen into their affordability zone, and bagging what they see as bargains. While there is some hope for sellers and they can remain optimistic, it is definitely a buyers' market."
A buyers' market
So, is now a good time to get onto the property ladder?
Although research suggests that consumer confidence in the housing market is low, falling house prices are likely to temp those looking to bag a bargain or those who were previously priced off the ladder.
But Miles Shipside warns: "It can be a good to time to get in, but the key is to spot the bottom of the market. Is this it or is there further turmoil to come?"
If you do decide to buy, then choosing a location is an important consideration. The UK's largest mortgage lender, Halifax, is forecasting "modest" house price growth across southern England and in Scotland during 2008, but falls in northern England and the Midlands.
Martin Ellis, chief economist at Halifax, says rapid house price in the North and Midlands means many people in these areas have been priced off the property ladder. While future house falls are good news for first-time buyers, fear of selling at a time when the market is weak could mean many potential sellers stay put.
But Ellis adds: "These falls should be viewed in the context of the substantial house price rises over the past few years."
Stuart Law, chief executive of Assetz, says that negative housing market sentiment has damaged the confidence of sellers.
Law adds: "The current climate poses an excellent opportunity for first-time buyers who should strike while the iron is hot and take advantage of some nervy moves from developers and vendors looking to sell quickly, with reduced prices and tempting buyer incentives currently available.
"Unfortunately we do not expect this to be too widespread, and would-be first-time buyers will continue to enter the private rented sector in greater numbers than those opting to purchase."
The latest figures from the Council of Mortgage Lenders show that, despite the credit crunch, 2007 was a record year for mortgage lending. Around £362 billion worth of mortgages were borrowed last year, up 5% 2006.
Although bad market conditions brought on by the credit crunch meant lending in December fell to the lowest monthly level since May 2005, the CML says it is confident that borrowers with clean credit histories will be able to find mortgages in the months ahead.
Michael Coogan, director general of the CML, says: "Despite the funding constraints caused by global conditions, the UK mortgage marketplace remains highly competitive and there will continue to be a range of good deals available to better risk borrowers."
Andrew Montlake, partner at independent mortgage broker Cobalt Capital, is also confident that the outlook for 2008 is more positive than the last months of 2007.
He says: "There is a very good chance of an interest rate cut in February, and at least one more during 2008, which will incentivise borrowers and restore much needed confidence."
If you have had problems with your finances in the past, and have gone into arrears, had a County Court judgement or even been declared bankrupt then you may struggle to finance a house purchase at the moment.
Many mortgage lenders are reluctant to lend to people they classify as higher risk, or are charging high interest rates in order to cover their backs should these borrowers default.
Missing a mortgage payment is still a major problem for many homeowners. Research by MoneyExpert.com shows nearly half a million people have missed a monthly repayment on their mortgage in the past six months.
Sean Gardner, chief executive of MoneyExpert.com, says: "It's clear that many home owners are feeling the strain of successive interest rate hikes but if the result is that you can’t pay your mortgage then you should take action immediately.
"If you are struggling to afford the repayments then now is not the time to stick your head in the sand. A phone call to your lender can ease the pressure enormously."
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
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.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.