House price crash?

So the media band wagon begins. Confidence has a big part to play in the housing market. So are we all wishing for a crash, or do we want more realistic house prices. The danger is people will start to believe the hype. House price growth is slowing, high street confidence is suffering but what are the facts.  

House price growth this year was recorded at 8.1pc over the last 12 months. The last few months have been more volatile so its hard to get an accurate measurement yet. This due to buyer caution and the negative media headlines. There will be some good opportunities in the coming months as vendors need to move and developers need to achieve sales by offering incentives. This will start to show in house price indices. Better prices will reflect better yields for buy to let mortgages and potential growth over the next few years. Short term wobbles in the market will be ridden out by professional investors.

Which way will rates go?

The market fully expects bank base rate reductions of up to 0.75pc over the next year. If this happens, professional investors using base rate tracker mortgages can expect substantial buy to let mortgage cost reductions over the coming months and rates of around 5pc are likely on many products, before fees. 

Will rents rise?

According to recent RICS, ARLA and Paragon surveys, rents are already up. London rents are already at 15pc and, as usual, this is likely to be preceding significant growth in the rest of the UK regions.

What’s driving growth?

First time buyer mortgages have dropped from over 20pc of the market to less than 10pc. Homebuyers are buying in less but still at a greater rate than property coming on the market. This represents a substantial number of people switching from buying to renting and a disproportionate number of smaller households resulting from frustrated first time buyers unable to get onto the ladder. This will lead to substantial growth in rents for flats and terraced property.

Undersupply or oversupply? 

Government’s increasing targets for new housing indicate there is a massive undersupply of property in the UK. The talk of oversupply has referred mainly to rented flats in city centres. However, it is now becoming clear that this was a relatively small oversupply and agents in many cities and towns are reporting strong rental demand surges and a rapid reduction in rental accommodation available. Even city centre flats are recovering and rental demand is so far boding well for strong rental growth in the future.

Inflation? 

Competition between the supermarkets will keep inflation under control, oil prices are now dropping and average inflation for the last three months has been bang on target, at just below 2%. Clearly interest rates are now starting to lower following a sharp fall in inflation over the last few months. The Bank of England is on target.

Population & immigration?

Government figures suggest the population will grow 4.4 million by 2014 - that represents an enormous extra demand for housing when there is already a shortage.

Should I buy? 

Rents are rising and opportunities exists to use the current fearful market to your advantage, buying at better prices than has been possible for some years, from forced sellers (some developers and people who need to move house very quickly). Buying cheaply in a strong rental market will significantly enhance yields for buy to let mortgage investors and allow mortgage costs to be covered relatively easily and relatively quickly.

Professional investors in any market act against the crowd. This is the opportunity to think like a professional investor and buy at a time of market pessimism, with a 10 to 15 year plan. What is more, rents will pretty much cover your mortgage straightaway with strong returns already being reported.