The Nationwide monthly update on house prices recorded a 0.9% rise in June, lower than their 1.2% figure for May, but it is still an increase for the third month in a row.
Should we (home owners) get excited? Well in short, not yet, but this is good news. Some analysts are saying that the lack of properties for sale was creating the effect of increasing prices, the actual number of buyers is still well below normal levels for this time of the year.
From my perspective buying demand for houses is based on three factors:
1. Affordability – the property must be affordable, at the starter home end of the market it is a simple comparison largely based on the cost to rent versus the cost to buy. If it is cheaper to buy than rent then there will be high demand from buyers.
2. Finance – there needs to be readily available mortgage finance so that buyers can buy. Its not a question of whether you can afford the mortgage finance, currently it is often a case of whether you meet the lender’s criteria for a mortgage.
3. Confidence – as buyers we have to feel confident about house prices, it is a major purchase and we thus need to feel confident that prices are not going to drop off the cliff in a year or two from now.
So where are we on these 3 key factors? Well, based on what I am reading from the many reports published:
Affordability – in many parts of the country it is still cheaper to rent than buy when you consider future expected mortgage rates (e.g. 5.5% to 6.5%) and the various ownership costs from insurance through to maintenance.
Finance – this is starting to improve, but we still have some way to go for first time buyers as the LTV (Loan to Valuation) often requires a very large deposit. Credit ratings is still quite an issue for many would-be borrowers.
Confidence – this is starting to return with each positive report on house price increases, but for many there is still the uncertainty over increasing unemployment.
