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Archive for House buying

How vulnerable is the property market?

Wednesday, June 25th, 2008

While bad news about the property market is easy to come by these days, there must be some good news out there. We round up what economists and experts are saying about the property market.

First of all David Miles, chief UK economist for Morgan Stanley warned that house prices are going to drop by 10% in the coming 12 months. Mr Miles believes that house price growth was largely fuelled by speculation that prices would always continue to rise as well as the belief that the number of people buying properties would increase by 10% in each coming year.

However Mr. Miles also believed that falling house prices would not be such a bad thing for the economy since it would help redress the affordability issue in the market which has spiralled out of control in recent years.

Meanwhile, Capital Economics chief economist Roger Bootle predicted that prices in 2008 would drop by only 3% followed by the same amount in 2009, an optimism that many wish were true.

The reality is that thousands of pounds have alreeady been knocked off the price of the average house in the last six months and prices are set to fall further.

Mr. Bootle says that the drop in house prices has little to do with the credit crunch and more to do with a drop in interested buyers, the number of which have been falling for the past six months. Additionally, with home loan rates still high, despite the three base rate drops since last December, many borrowers are actually unable to get the loan they need to take advantage of lower house prices.

According to Mr. Bootle the two fundamental reasons for the house price slump is the 5 consecutive interest rate rises between August 2006 and July 2007 and the fact that the property market is now too expensive for most potential buyers.

Whatever the reason, there is no doubt that house prices are falling, and in what has been described as an over-inflated market, this is probably no bad thing.

Posted in Borrowing, Consumer Credit, Financial news, Financial products, First time buyers, Homeowner Loans, Homeowners, House buying, Housing news, interest rates, mortgages, Property, Remortgaging, Secured loans, UK Finance | No Comments »

Interest rate dilemma for Bank of England

Monday, June 16th, 2008

There are mounting fears that the Bank of England is losing its grip on the economy. A combination of rising food costs, fuel hikes and other price rises are stoking inflation which should mean raising interest rates for the Bank.

However as a result of the global credit crunch, banks are starting to hoard money instead of lending which is putting downward pressure on house prices and pushing the monetary policy committee (MPC) towards actually cutting the base rate. Even in this atmosphere of falling house prices, would-be buyers are finding it hard to secure a home loan to make a purchase they can now afford.

The credit squeeze has created much uncertainty in the economy and the nine MPC members seem very reluctant to actually cut interest rates. The members are facing a dilemma in that domestic inflation is heading in one direction while at the same time the international money market is actually going in the opposite direction.

When the Consumer Prices Index went up by 2.1% – which is above the government target of 2% – it would, under any other circumstances, signal an increase in interest rates in order to bring about higher borrowing costs. The interest rate at 5% is still an expansionary rate which will only fuel higher inflation, putting inflation up again to a more neutral level will hopefully neither dampen nor stoke the economy.

However the credit crunch is pulling for interest rates to come down. Uncertainty in the banking sector has prompted banks to cut lending to other institutions and instead hoard cash. Customers are reporting difficulty in securing personal loans, especially for debt consolidation, as lenders are either unable to access the funds, or simply unwilling.

Bank of England governor Mervyn King has warned the MPC that the credit crunch could get even worse in the coming year unless interest rates are cut.

Posted in Borrowing, Consumer Credit, Consumer debt, Debt Consolidation, Debt management, Financial news, Financial products, Homeowners, House buying, Housing news, Inflation, interest rates, mortgages, Personal debt, Personal loans, Property, Secured loans, UK Finance | No Comments »

Split your mortgage between fixed and tracker

Friday, June 13th, 2008

Five interest rate rises in a row last year really hit us hard and despite the subsequent drops, many of us are still left struggling to find the right mortgage. The base rate may have dropped, but lenders are still struggling with liquidity issues – meaning they just cannot access the funds to offer as loans – and so the LIBOR (inter-bank lending) rate remains high.

There are a number of options available to anyone seeking a new home loan however, because finding the right mortgage product is very important. The fixed rate mortgage could avoid the risk of further rate rises in the future, but lenders are also aware of this and increasingly fixed rate home loans come with shorter and shorter renegotiation periods as well as increasing renegotiation charges. So whilst taking out a fixed rate mortgage is always an option worth considering it may not necessarily be your best one.

There is no avoiding the fact that as interest rates stay high, our loan repayments will be steep. Add to this the increasing fuel and food costs and many people are worried. So what are we supposed to do to protect ourselves from getting out of our depth and falling into financial difficulties?

Some lenders have introduced a new option that while slightly unorthodox could be worth some serious consideration. Lenders such as Barclays are allowing borrowers to split their mortgage into two and have half on a fixed term basis and the other half of the loan on a tracker basis. This takes out some of the risk for the borrower but will mean taking extra time in searching to find a lender who is willing to make the deal with you.

The arrangement fee could be higher than with a non-split mortgage and the time in finding the mortgage could take twice as long, however you are splitting the risks involved and if you don’t like to take chances with your money than this could be the option for you. With inflation still running high, cost of living rising sharply but no matching rise in wages, it is wisest to play a cautious game when it comes to your mortgage.

Posted in Borrowing, Consumer Credit, Financial products, First time buyers, Homeowner Loans, Homeowners, House buying, interest rates, mortgages, Property, Remortgaging, Secured loans, UK Finance | No Comments »

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