I am sure you don't need me to tell you that according to the Halifax, property prices fell by around 16% in 2008. I am also sure that unless you have been cocooned away from the media you will have some appreciation that the fall in property values has been caused in large part by the sudden and prolonged fall in the availability of mortgages. Without the stuff that allows buyers to express their demand for property (money in the form of mortgage funds), then the laws of economics dictate that prices will fall.
According to research by the Halifax, house prices compared to earnings are now at their most affordable level for five years and this situation will improve further over 2009.
With high property prices over recent years, many first time buyers have found themselves priced out of the property market. We are seeing large numbers of first time buyers who can now afford to buy based on what they earn.
Because of the fall in house prices and the lack of mortgage funding which started with the failure of Northern Rock in August 2007 (yes, it really was that long ago!), could the housing market now be like a coiled spring?
At Oak Tree Mortgages, we have seen more first time buyers in the last three months than in the whole of 2008. More and more of these first time buyers can afford to purchase a property based on their wages. Buyers are attracted to the lower property prices and see this as an opportunity to get a foothold on the property ladder. These factors are an indicator to us that there is huge unsatisfied demand.
Currently, not all first time buyers can get a mortgage and not everyone has a 10% deposit as demanded by mortgage lenders.
We all know that the government have invested vast amounts of our money in supporting the banking system. The support offered prevented a near collapse of the banking system in the autumn of 2008, however, those efforts have not yet worked their way into the mortgage system. Measures taken last year and the continued support offered by the government are likely to have an effect on the mortgage market in 2009.
We strongly suspect that there will further government intervention in the banking system to encourage mortgage lending in the spring of 2009. Why?
The recovery in the housing market is now so closely linked to a recovery in the wider economy. Also, no mortgage lender can act unilaterally by lowering the deposit required of a first time buyer; that would be commercial suicide. However, with a number of lenders acting together, lending to first time buyers can be encouraged again. This is the point we all want to get to as this is the point that prices will stabilize.
So for those considering buying, don't put your life on hold; life goes on...
With so many properties for sale a smart buyer will buy a house that has a wide appeal, which is likely to hold it's value and that ticks as many boxes as possible in terms of what you want from a home. With many sellers offering flexibility on their asking price, any price reduction achieved now will help to protect against the effects of any price falls during 2009.
If you are buying, look to the longer term. That way you will not become fixated with trying to call the bottom of the market. The signs are that when mortgage funding eases, even a little, new buyers will be bought into the market and this will help prices to stabilize. As David Dalby, residential faculty director of RICS (the surveyors professional body), said: "Because we have slumped so quickly the likelihood is the recovery will be very quick as well and the great danger is people being left behind, waiting that bit too long and suddenly finding prices are starting to move up again and being left behind, particularly first time buyers.”
Our experience of the market over recent months adds weight to this view. Do you really want to gamble on calling the bottom of the market in 2009 or do you want to get on with your life and do something less broing instead?
UPDATE 21st January 2009
As we suspected, the Government has announced a range of measures designed to kick start lending within the economy. Our local estate agents, Melvyn Danes and Smart Homes, both report very much increased activitiy.
Over time, the measures taken by the government will have an effect on the mortgage market. With President Obama poised to spend billions of dollars to stimulate the American economy, over time we will see government action on both sides of the pond reshape our economies and breath new life into the mortgage and property market.
