Is now a good time to buy property?
31st January 2011
House prices are expected to fall further in 2011, and mortgage lending is expected to be at its lowest level for 30 years, but a survey out today suggests two thirds of consumers think next year could be the right time to buy a property.
According to the Building Societies Association (BSA), many people believe the current property downturn presents buying opportunities. Is this just another example of our blind faith in the housing market – or are these investors on to something?
David Hollingworth, of London & Country mortgage brokers, says: "Much depends on what the motivation is for buying. If you are expecting a sharp increase in value, then you are going to be disappointed. All the indications are that this is not going to happen for the next year or so. At best prices will be flat, and they may even go down over the year."
So why would people want to buy into a falling market? Mr Hollingworth says: "Conversely this could be a good time for those either looking to get onto the property ladder or upsize."
For those looking to move into a bigger home, falling house prices are not a disaster. Although they will get less for the home they are selling, they will save on a property they are buying, and proportionately this will be a bigger saving. But for the same reason sliding property prices are not good news for those downsizing.
Mr Hollingworth adds: "This is definitely a buyers' market and is likely to remain so for the time being. Those who are in the position to buy a property should certainly make the most of this opportunity, and if you plan to live there for a while – or even hold a buy-to-let property as a long term investment – then modest price falls over the next year shouldn't make much of a difference."
However, while the BSA said two-thirds of the people it surveyed saw a weaker housing market as a buying opportunity, the fact remains that fewer will be able to take advantage the current conditions.
Melanie Bien, a director of Private Finance, the broker, said: "There will definitely be some fantastic opportunities out there. The problem will be securing the mortgage finance to do it."
The mortgage environment will continue to remain tough for 2011, she said. Only those with substantial equity in their home or large cash deposits are going to be able to secure a mortgage deal. In addition, lenders are now reluctant to offer interest-only mortgages, and are restricting how much money they will advance relative to a borrowers' income.
New mortgage rules introduced by the Financial Services Authority are likely to make this lending environment even tougher. Given these restrictions, many who are looking to get a foot on the housing ladder or snap up a bargain buy-to-let property will find they can't get a mortgage at present – at any price.
"As a minimum you will need a 10pc deposit," Ms Bien said. "But even here, rates aren't particularly competitive, given the Bank Rate stands at just 0.5pc"
Mortgage rates however are far more competitive for those who have at least a 40pc deposit. Mr Hollingworth added: "For those with the money, the housing market could well offer up a few bargains next year, but for everyone else it looks like being more of the same."
Source: Telegraph 31/01/11 By Emma Simon