Not a day goes by nowadays where some hack with an axe to grind bemoans the'sorry state' of the UK property market. Headlines warn of an impending crash,whilst weekend supplements advise homeowners of how to sell in a fallingmarket. Now I'm more inclined to read between the lines and try and make my ownmind up, rather than follow the sheep and prepare myself for armageddon.
Sure, house prices have been soaring at an astronomical rate over the pastfew years. Back in 2000, average house prices according to the Halifax stood atroughly £85,000 in 2000, now they stand at nearly £200,000.
So why has it happened?
In a nutshell, mortgage lenders have fallen over themselves to lend bigger,at lower rates and to virtually anyone who wants a mortgage, no matter how badtheir credit report is (Northern Rock, anyone?). Add to the fact that we livein an island with a shortage of available property, where buy-to-let landlordshave been snapping up two-bedroomed properties at a rate of knots, taking themout of the hands of prospective first time buyers, and you’ve got a formulathat goes a long way in explaining why house prices are so high.
I bought my house with my best friend in April 2006 for £140,000, taking outa two-year fixed at 4.95%. I’ve been monitoring my local market with greatinterest, and saw the value of my home touch £160,000 last summer. Now however,(after having it valued officially as my friend wants to sell up), it wasvalued at £150,000, or £145,000 for a ‘quick’ sale. That’s still a tidy profit,but when you take into account estate agent’s fees, solicitor’s fees, the costof a HIP (eeugh), and the mortgage exit fee, and we’re pretty much back towhere we started.
There is no doubt that the market has changed, but I seriously don’t thinkhouse prices are heading for a crash. Mortgage lenders still offer 100%mortgages, sub prime mortgages are still on the shelf, albeit at a lower amountthan they were before the credit crunch bit, and the prime residential mortgagemarket continues virtually unaffected, with only a handful of lenders tweakingtheir loan-to-values.
Historically, interest rates are very low. In the dark days of the 1990swhen the property market really did crash, interest rates were 15% and therewas an oversupply of housing. Now however, the opposite is true. The Bank ofEngland looks set to make another 0.25% cut to 5.25% next month, with manyeconomists expecting interest rates to fall to 5% by the summer. Not only couldthis prevent the property market from falling further, it could renew optimismin the market. Demand continues to outstrip supply, and there is a realshortage of housing – whilst immigration continues to increase.Perhaps I’m being too optimistic, crossing my fingersand hoping for the best as I’m one of the lucky 20-somethings that has managedto get on the first rung of the ladder, but if house prices were to crash itwould take something bigger than the Northern Rock crisis to do it….We’ll justhave to wait and see.