Posts Tagged ‘property prices’

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Egypt – the economic ripples and how they may affect UK economy

January 31st, 2011

It is almost classic chaos theory, riots in the street in one country such as Egypt can affect the price of houses in UK.  Seems strange but it really is possible, here is why.

Instability in Egypt affects the Middle East region and in turn this could affect oil prices.  Already the ripples are being seen in the currency markets as currency traders and investors mark down the higher risk currencies.  If investors see a threat to future oil prices then prices will most likely increase.

Any increase in oil prices will impact economies and in particular the UK economy which is already experiencing an inflation upturn.  If UK inflation increases too far then the pressure on the Bank of England to raise base rates will grow.  And with increased interest rates it will make the cost of house purchase higher, thus impacting on UK property prices.

So far we have just used the oil example, but other commodities are at risk of price increases, one major example is wheat prices.  Any increases in commodities will again feed into higher inflation.

The bottom line is the stability in Egypt and the Middle East is key for the UK economy, and most especially whilst the UK is experiencing its own domestic issues due to the extraordinarily high level of national debt.

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Posted in UK Economy

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Is “Mortgage Stickiness” holding up property sales?

January 24th, 2011

The term “Mortgage Stickiness” describes the situation where a property owner has a mortgage product that they want to keep, typically because the mortgage is a fantastic deal that they cannot expect to improve upon, or it may be their financial situation has weakened and thus its unlikely they will be able to get another mortgage.

The current market has left up to 50% of residential mortgage holders with products that track bank base rates at 1% or 2% over base rate, in some case less than 1%.  In effect these mortgage holders have a huge disincentive to move property because if they did the new mortgage would have a much higher long term interest rate (some products offer initial low rates but the longer term rates are typically 3% or 4% over bank base rate). 

The effect is that someone with an average mortgage of around £140,000 (BBA statistics) could see interest charges increasing from £233 pcm (2%  rate) to £466 pcm(4% rate).  For many people this is a huge disincentive to move.

The other factor is those whose financial situation has changed, or maybe the more recent strict mortgage rules man they can no longer get a mortgage (some self employed may fall into this category).

No one knows for certain but it is clear that a very large percentage of property owners are effectively in a trap, they have a “sticky mortgage”, it would simply be too expensive to move to a new mortgage, effectively leaving them with no option of moving property.

This then takes us to our last point.  With a large proportion of the property market (up to 50%) trapped in this way we have a situation where there is insufficient property coming onto the market.  Perhaps this is a good thing short term as it helps to stabilise property prices?  However if the BofE starts to increase bank base rates too fast we could see a major shift, many will no longer be held back by their existing mortgage which will become more comparable to new mortgages on offer.  This could create a step change in market supply and create some interesting dynamics for property prices.

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Posted in UK House Prices

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Are house prices set to surge?

January 18th, 2011

According to a news article published in the Express today there are expectations of a house price surge in spring 2011.

But it all depends what is meant by “surge”.  The article does not give any predictions, its focus is more on the balance of opinion amongst surveyors that prices will increase this spring. 

One of the factors given for the spring increase is a shortage of quality housing available for sale.  Thus it only takes a small increase in demand, when combined with shortage of supply, for prices to increase.

The fact is however that houses prices tend to follow a seasonal pattern in that spring is traditionally a period where prices rise (relatively).  But in a declining market as we have seen recently a rise in prices this spring will correct the falls over the winter, the real question is will prices increase over the full year of 2011? 

A longer term sustainable increase in property prices may still be some time away as there are many factors at play here.  If you would like to read more about factors that influence property prices read our 2009 article on house price predictions.

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Posted in UK House Prices

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Falling property prices and increasing rents?

January 7th, 2011

It may seem an unusual combination but there have been increasing reports of property prices falling and at the same time increases in rents. Why is this the case and can it continue?

Firstly it is worth looking at rental yields.  Over the last 5 to 10 years rental yields have fallen to a level where for much of the South East UK a yield of 5% was typical (although yields where higher in some areas such as North East UK).

In part the low 5% yield was down to property prices being driven upward whilst at the same time the rental market was effectively capped by affordability, thus as house prices increased rental yields fell.

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Now we have a situation where the recessionary impact on rents has eased allowing rents to increase in some areas.  At the same time property prices have fallen.  The upshot is that rental yields of 6% are now becoming more common in the South East.  But what about the longer term?

In the medium term there will be some negative impact on rents due to housing benefit changes but there are longer term upward pressures on rents, in particular two;

  1. Mortgage financing is becoming more difficult, and with international agreements for banks to increase liquid assets (Basel III) this shows no sign of abating. This could mean an increasing proportion of the UK population turning to tenancies rather than home ownership.
  2. There is a growing UK population which is not being matched by an increase in new homes being built.  This will create an increased demand for housing and thus tenancies.

The upshot is in the medium term there does seem to be a trend of falling house prices and increasing rents.  But in the longer term property prices will start to rise but we will probably see improved rental yields compared with the last decade.

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Posted in Buy-to-Let, UK House Prices

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Will property prices fall again?

November 10th, 2010

This is a question asked by many, and whilst there is no clear answer there are certainly some factors coming into play. 

1 – The growth in the global economy.  Many local economies, such as the UK, depend very much on global economic growth.  The negative factor coming into play here is the trade protectionism which could damage UK economic growth and with it impact UK property prices.

2 – Finance availability.  There is an increasing requirement for banks to improve their liquidity which in turn restricts what they have to lend.  The upshot is less finance for mortgages means it becomes even harder to buy a property.

3 – Rent capping for those on benefits.  Whilst many would agree with the UK approach here it should have a medium term impact as reduced market rents will reduce values for buy-to-let properties in some areas.

4 – Increased unemployment.  It is now becoming much more clear as to the effects of the austerity measures and the increased unemployment that will result.  The net effect of this will again be to put downward pressure on property prices.

Above are just some of the factors, but it starts to paint a picture, the balance seems  to suggest the there will be downward pressure on property prices in the medium term.

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Posted in UK House Prices

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Predicting property prices in 2010

February 26th, 2010

Nationwide have just announced a 1% fall in property prices for February 2010, this is after a period of over 9 months with reported increases, so what is happening, what is the prospect for property prices in 2010?

We have previously blogged about the weakness of the property market and that we are not in a normal market where any increases or decreases can be taken as predictors for future prices.  The fact is the volume of property sales is well below historical averages, this lends itself to more unpredictable property prices.

Other factors also come into play, in particular the restoration of stamp duty thresholds on 1st January 2010.  Such changes in an already thin market have a more pronounced effect on property prices.

But key for most of us will be future property prices.  Unfortunately it is tough to predict, as we highlighted in our blog post about property prices in October last year.  The key factor for 2010 will be the election, who gets in power and what actions will they take to address the UK’s economic issues.  Whilst we are not in the same precarious situation as Greece we do have challenges to face, and how we face them will impact property prices.

So, back to the heading of this post, predicting property prices in 2010.  The fact is this year will probably be one of the most difficult to predict, because we have so many unknowns with the pending election.  Our best guess is that prices will be relatively flat in 2010, some months of increase, some of decrease.  Time will tell!

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Posted in UK House Prices

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Property prices rise 1.2% in October – according to Halifax

November 4th, 2009

The latest figures form Halifax report a fourth consecutive monthly increase in property prices of 1.2% in October, this compares with a 0.4%increase for October reported by Nationwide.

But it is the comments behind these headlines that are interesting….

Halifax’s housing economist, Mark Ellis, also raised caution that much of the recent increases are because there are too few homes on the market to meet demand.   Mr Ellis also commented that there are some indications that more people were deciding to put their homes on the market which would curb the rate at which property prices are increasing.

The Chief Economist of HIS Global, Howard Archer, commented that you can’t place too much store on one survey and that you need to look at the whole picture.  In particular Mr Archer commented that “I just don’t think the economy is strong enough to sustain these increases”.

Overall the message here seems to be that caution should be applied to the reported increases in property prices and that we are still in a fragile economy.

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Posted in UK House Prices

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Property prices, are economists coming to a consensus?

October 8th, 2009

After recent months of positive media reports suggesting that property prices are now on the rise and that the worst was behind us we are now seeing an increasing number of economists and industry experts painting a more pragmatic picture, one of uncertain times ahead, much the same as we have previously suggested in our blog.

Firstly the Chief Economist of Halifax, Martin Ellis, suggests that the recent increases in house prices have been largely due to an “increased demand with low level of properties available for sale” and “improvement in affordability”.

Carter Jones property consultancy, David Smith, said that “we have to expect more turbulence ahead, especially given rising unemployment and the fact that, at some point, interest rates will have to rise”.  Has he been reading our blog?

CBRE, Jennet Siebrits – head of residential research, commented that “the number of sellers has started to rise” and that this could re-dress the balance of demand-supply as the sellers start to outnumber the buyers, thus “leading to further house price falls”.

Overall there seems to be an increasing consensus, much as we have already reported, we are not yet into a period of sustainable growth in property prices.

Here is one of our posts from August outlining prosects for UK property prices ..http://www.repaymortgage.co.uk/blog/2009/08/16/uk-house-price-predictions/

You can browse more of our posts on property prices here … http://www.repaymortgage.co.uk/blog/category/ukhouseprices/

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Posted in UK House Prices

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Austerity and Property Prices

October 7th, 2009

This week we have heard the phrase “age of austerity” by George Osbourne at the Conservative Party Conference; in effect referring to a period of greater financial prudence as the UK reduces its budget deficit. So what will this mean for property prices?

Already announcements have been made to prune £7bn off the mountain of debt, but clearly there is much more to come. 

As yet no one has said that there will be job cuts in the public sector, but it seems impossible to achieve the savings required without job cuts.  Clearly higher unemployment is going to affect property prices.

Another subject not yet receiving much attention is tax increases.  The level of savings needed to reduce public debt are likely to require substantial increases in tax revenues, leaving us all with less money to spend.  Clearly such action is again going to impact on property prices.

Over the next few months each of the main political parties will unveil more details on how the budget deficit will be addressed, as they do it will become clearer on how we are all going to be affected, and in particular for this blog, how it will impact property prices.  

Visit our blog again later for further updates on the impact on UK property prices.

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Posted in UK Economy

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Property price increases reported by Nationwide

October 2nd, 2009

Nationwide have just reported a 0.9% increase in property prices for September 2009, the fifth month in a row that increases in property prices have been reported. Is it time for property buyers to move in?

Whilst it is comforting to many that the spiral of price falls seems to have abated and that maybe, just maybe, we are starting to see some upward movement there still needs to be caution applied by anyone looking to buy.

Firstly we have still to see further rises in unemployment, this will certainly have an effect on house prices, particularly in those areas that will be most affected by higher unemployment levels.

Secondly, we have some fairly significant budget cuts to feed through into the economy.  Whilst at the time of writing this blog there has not been any clear indication from the government on the severity of cuts, there seems to be almost a consensus amongst economists that significant cuts in spending will happen. The phasing and timing of these cuts will have an impact on property prices.

Thirdly, all of the data reported in 2009 on property price movements is based on an “abnormal market”, that is mortgage lending is over 50% down on the historical normal levels.  Until the market is more fluid we will not know the true effects of buyer and seller demand, and thus the impact on property prices. 

Overall there is no need for panic, but equally anyone who thinks prices are about to boom is very unlikely to realise this.  The facts are we are still in uncertain times, the property market has stabilised to some degree, but property prices are still vulnerable to many economic effects yet to unfold.

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Posted in Fast House Sales, UK House Prices

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