I was asked recently to provide some predictions for a national newspaper about where the property market was heading for the next couple of years. The questions got me thinking in some detail about these issues and I ended up writing a lot more than I actually sent back to the paper: certainly more than they needed! However, for anyone who’s interested, this is what I saw when I looked into my crystal ball…
Where Are Prices Likely to go Over the Next Year or Two?
My feeling is that property prices in the next year or two are likely to stay relatively flat and possibly declined slightly. Most of the major house price surveys suggest that property prices in Edinburgh and the Lothians are, on the whole, declining slightly. Of course, repossessions and forced sales do push average prices down. But whether prices remain flat or decline slightly will depend on the sector of the property market and the geographic area. The geographic areas that are performing the best and types of properties that are performing the best are those in traditionally highly desirable residential areas. Properties with a garden or those that are suitable for families are performing the best and, in some areas, prices for these types of properties seem to be rising. Properties that are more suitable for first time buyers and those in slightly more outlying areas, or indeed those that aren’t in the best internal condition, are not performing so well. I think that the level of mortgage lending and in particular the sizes of deposits that the lenders require will have the most to do with whether these types of properties decline in value or recover slightly. I do not anticipate any sharp falls in house prices unless there is a global economic melt-down that negatively affects the lenders to the point where they restrict mortgage lending further.
Do You Anticipate Any Real Change in Activity Levels?
I do not anticipate any real change in activity levels in the next year or so. I believe that as long as mortgage lending and house buyer confidence remains at current levels that property transaction levels will remain at their current, historically low levels.
To What Extent Are Lenders Easing Their Criteria for First-Time Buyers?
I believe that lenders are using their criteria for first time buyers. We are certainly seeing more first time buyers in the marketplace than a couple of years ago. This might be because they have had an opportunity to save for a deposit in your last few years. However, it appears that more mortgages are available with lower deposits and more emphasis on affordability. Of course the best rates are reserved for those buyers who have saved a larger deposit.
Does the Current Market Really Represent a Decent Opportunity for First-Time Buyers Able to Save Deposits to Get Onto the Ladder?
The silver lining in the market conditions that we have seen in the past few years when many first time buyers just could not secure a mortgage was that it has allowed them the time to save a deposit which will allow them to get onto the property ladder.
With Interest Rates Likely to Stay Low for a While Yet, Many Homeowners are Still Sitting on Low SVRs. But Do You Believe Loan Costs Can Get Any Lower? Do You Expect Mortgage Rates to Rise Again Soon?
I do not expect that mortgage rates will rise in the near future. The current economic conditions are such that I expect that the Bank of England will hold interest rates low for quite a long time to come, possibly for another year or so. If interest rates were to rise I think we would see a lot of mortgage arrears and repossessions which would cause major problems for the UK property market. I believe that it is possible that mortgage costs can go lower. Lenders set their interest rates based on their predictions of where interest rates are heading in the next few years, especially with fixed rate or tracker mortgages. I see no signs of a swift economic recovery in the UK that will allow the Bank of England to raise the base rate. If lenders agree that interest rates generally are going to stay low in the UK then they will have the confidence to lower the fixed rate and tracker mortgages that they offer to property buyers. We have seen some very attractive fixed rate mortgages on offer recently. This of course will reduce the amount that people have to to pay on their mortgages as long as they are getting a new mortgage or are remortgaging onto one of these more attractive rates.
Are We Undergoing a Longer Term Shift in Attitudes Towards Home Ownership?
I don’t think that we are undergoing a longer term shift in attitudes towards home ownership. I believe that most people in the UK still want to own their own home. I do think that the traditional attitude that property represents a very safe investment and that prices never fall has been shattered. However, the emotional and practical benefits of owning a home are still very attractive to many people. I don’t think that we are heading towards a more European attitude towards home ownership where far more people rent a property than own one. I think in Britain we have had an attitude for several years now that home ownership and getting onto the property ladder is something that we should all be aiming for. Whether that is right or wrong, I don’t see that changing soon.