A self fulfilling prophecy?

The prediction of a sharp drop in house prices comes as no surprise in a sluggish market lacking buyer confidence. The suggestion by pundits of a price drop becomes a self fulfilling prophesy after a while as the more that people “in the know” talk about the drop, the more that buyers seek a bargain. Interestingly the Nationwide is trying to shed a more positive slant on the market with of course their having a vested interest in seeing the market very active. Ironic therefore that one of the reasons for the lack of sales and reduced confidence is due to mortgagees, including The Nationwide, tying a very firm knot in the lending purse strings.


A temporary aspirin?

Meanwhile, having picked myself up from the floor having digested Northern Rock’s decision to provide 90% mortgages I have to question whether those in charge are really in touch with reality. One imagines that the interest rates for such loans will be high, the arrangement fees reasonably punitive and the borrowers being asked to pay a hefty premium for a mortgage protection policy. The latter should in fact be called a “protect your lender policy” as it is the lender who benefits from the policy which is taken out at the borrower’s expense.

A dip in values by 8% will prevent property owners who have a 90% mortgage at the time they bought from selling as the associated costs in professional fees will amount to 2% so in essence putting more properties into negative equity. Add in possible early redemption penalties to the equation and this band of property owners will be in real difficulty.

The sense behind a 90% lending strategy has to be really questioned. Is this a case of temporary aspirin bringing longer term headaches?

Let us know what you think.

David Knapp, Partner
Residential Property

UK house prices fell 1.3% in December 2010

Our solicitors comment on the BBC article "UK house prices fell 1.3% in December, Halifax says"

The article comes as no surprise as the last 2 or 3 months have seen pressure on prices. Clients of ours who sold in the late summer, only to lose their buyers and to re sell in November and December are having to take a reduced offer to re sell. Agents are desperate to keep buyers on board where matters have stagnated telling our sellers “you will not achieve this price in the current climate and for the foreseeable future”. Gazzundering, where buyers come in at the last minute requesting a price reduction for no reason other than the market suggests a reduction in value, is common place but does not seem to receive the press coverage expressing the out rage that accompanies the opposite, gazumping, when a seller ups the price at the last minute. Interestingly gazundering is seen as fair game but gazzumping as abhorrent.

There are no indicators as yet that the market is going to pick up at all from a price perspective in the coming 12 months and if anything is going to continue to slide downwards. This is positive from the point of view of first time buyers and those moving up market and so does not deserve the negative press that a sliding market receives. The negative press is generally generated by those having a vested interest in the market flying away upwards, estate agents and mortgage lenders.

Stability and volume is what most people in the interest would like to see.

Find out more about Hart Brown's Residential property team based in Surrey and South London