The Housing Market is drawing a lot of media attention in particular relating to house prices, interest rates, and the state of the housing market in general. Our Residential Conveyancing Department offer their thoughts and observations on how this may impact you personally.
Recent statistics predict that there are as many as 2 million fixed rate mortgages due to come to the end this calendar year (source ‘Money Facts’). This means that a lot of mortgages are going to automatically change from a fixed rate onto a significantly more expensive variable rate which significantly increases the monthly amounts payable if action is not taken. Even acting now to fix to a new deal will still likely be significantly higher than previous deals on the market due to the rapid increase in the interest rate.
An example of the increase is shown in a recent statistic released suggesting that the average 2-year fixed rate mortgage interest rates being offered across various providers is presently at 5.8% (source ‘Money Facts’) In the past we have seen deals at a rate of less than 1% in some cases. The increase depends on your personal position including the amount of equity you have in your property but illustrates the significant change over the last 18 months.
The Bank of England base rate is presently 3.5% and there is a wide-spread expectation that this will almost certainly go up soon as the Bank of England review the rates on a regular basis which could lead to even higher fixed rate deals.
In addition to the above, recent figures released by the Halifax Building Society show that the average house prices fell by 1.5% in December. This represents a fall for the fourth month in a row but as you will have noted from our earlier article, there is now optimism that house prices are stabilising.
Whilst the above in general paints a negative picture for the property market for the foreseeable future, the reality of the situation is that you need to carefully consider what this all might mean for you personally and take action.
As is ever the case with this type of situation, the reality of matters depends upon your personal circumstances and your current position. Whilst it is therefore impossible to advise on every different scenario that may occur, we thought it may be useful to put together some different scenarios that may directly relate to your circumstances.
First Time Buyers
We have all been first time buyers at some stage in our lives or aspire to be first time buyers in the foreseeable future. Whilst the situation may seem somewhat bleak for first time buyers over recent years being mindful of the recent poor interest rates on savings and how hard it is to save up for a deposit with ever increasing inflation and costs of living, there is a general feeling that should there be a decline in property prices, this could be beneficial for first time buyers. It is important to remember that house prices are always “somewhat relative” as to a certain extent, what your house is worth is only particularly relevant if you are looking to either buy or sell property or having to re-mortgage based upon the calculations of equity in your property for loan to value purposes.
If you are an individual that has been saving for a deposit and are hoping to buy your first property in the foreseeable future, then timing is very much of the essence. House prices have increased significantly over the years however a potential fall in house prices over the months and years to come could represent a good opportunity for first time buyers to acquire property at a lower price than previously would be the case. You need to have in mind that your mortgage interest rate will be more than it would have been if you had bought a property before the current financial crisis and it is not for us to tell you what you can or cannot afford. However, it is generally expected that falling prices may represent some good opportunities for those seeking to buy their first property and get on the housing ladder. You may even get modest rate of interest on your savings whilst you save up for your deposit!
There are some concerns about mortgage companies constantly changing products and rates. Our advice to first time buyers would be to enlist the services of a good and trusted financial advisor to explore the entire mortgage product market. They will be able to advise as necessary and work closely with you on affordability calculations. They will advise you on which products work best for you personally.
A note at this point for parents considering making a loan or a gift to their children to assist in the purchase of their first property. We understand that many parents want to assist their children in the purchase of a property by using some of their savings or even sometimes re-mortgaging their own properties to free up some capital to assist their children to ‘get on the housing ladder’. It is crucial for any families embarking upon this course of action to take good legal advice in the very early stages of the transaction. If you are considering assisting one of your children in this way in the foreseeable future, please do feel free to give us a call and a member of our Residential Team or our Private Client Team would be delighted to discuss the options available to you further to ensure the situation is accurately reflected and that you ensure your assets are still dealt with fairly between your children in the future.
In our next article, we will be looking at those already on the housing ladder and considering buying a larger house.