The housing market appears to have had a relatively weak start in 2011 – although viewings are apparently up on this time last year.
This could be a positive, because low demand tends to reduce prices, which is good for first time buyers as well as anyone intending to ‘trade up’ to a more expensive home.
However, those wishing to downsize – or needing to move to be nearer a new job, or because current accommodation is simply no longer adequate – face difficulties if there are too few potential purchasers.
What does this mean for mortgages?
In some respects, mortgage lenders are part of the problem, rather than a possible solution. They have, ever since the credit crunch started, made it difficult for first time buyers to borrow, by withdrawing many of the high loan-to-value mortgages that were previously available. This means that young people have to save a much higher proportion of the purchase price than was once the case and even slightly lower prices are insufficient to help.
The fact is that on a £175,000 home, most buyers will need a deposit of anything from £17,500 to £35,000 – and that is before you allow for legal costs, removal and furniture (well there are always orange boxes to start off). If you are earning £25,000 a year and living in rented accommodation, this could take a long time to build up.
No wonder so many people are turning to the Bank of Mum & Dad, or even grandparents.
The threat of rising interest rates
But there is another issue that is likely to affect homebuyers, whether they are just starting out, or are already on the ladder and want to move – or simply rearrange their borrowings.
The poor growth figures for the end of 2010 appear to have prevented the Bank of England from using a rise in base rate (which has been at 0.5% for not far short of two years, now) to try and bring down inflation from its current frighteningly high level. But there is a strong possibility that the adverse movement in gross domestic product was a bad-weather-induced aberration and that there will soon be scope for the Bank to increase its rate.
While mortgage lenders take more account of five-year swaps to determine what they charge borrowers, it is inconceivable that they would forego the opportunity of a modest rise in base rate to push up their charges by as much, or more.
Should you be considering your position?
Whatever your position on the housing ladder, you should be thinking carefully about what type of mortgage is most suitable for you. While some people like the idea of a mortgage that tracks base rate – because this prevents lenders from hiking their rates without a movement at the Bank of England – others may feel more confident with a fixed-rate deal that determines precisely what their outgoings will be for an agreed period.
There are, of course, other forms of mortgage, including offset and variable rate mortgages. With the market so very difficult at the moment, it is important to seek professional advice before making any decisions relating to your personal finances.
Your home may be repossessed if you do not keep up the repayments on your mortgage. A fee may apply for mortgage advice and you must ask your adviser for details before making any decision relating to a new mortgage as the actual amount will depend on your personal circumstances, but in most cases is unlikely to exceed 0.5% of the loan value (on a typical £100,000 mortgage, this would be £500).
NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN OR BUYING AND LETTING PROPERTY IN SCOTLAND AND NORTHERN IRELAND.