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

Real news for first time buyers?

Will the provision of large loan to value mortgages really be the way to introduce confidence into the market and set the first time buyer’s pulses racing? This initiative does not solve the problem of severe job insecurity which is a hurdle that a large number of potential first time buyers are finding impossible to negotiate.

Lenders also have astonishingly short memories. The high % loan to value mortgages in the late 80’s saw properties quickly enter negative equity when the market dropped in value in the early 90’s. The same happened in more dramatic terms in early 2008.

Mervyn King has put forward his thoughts as to the problems in the economy and the spectre of 1.25% interest rates by the end of 2011 is now a real possibility, if not probability. Where will people find the extra amount of interest they need to pay should rates go up when there are few pay rises in any sector? The feeling in the property industry is that any significant rise in interest rates, with 1% being considered very significant, will kill the market stone dead whilst distressing huge numbers of house owners who have struggled through the last 24 months.

All in all, is this really the time for young first time buyers to saddle themselves with a 90 or 95% mortgage?


http://www.guardian.co.uk/money/2011/feb/17/mortgage-lenders-first-time-buyers

David Knapp, Partner
Residential Property

For the next generation of house buyers?

For dinosaurs like me, the concept of receiving mortgage information through my telephone is beyond my brain’s capacity!

My children however would lap it up.

Mortgage lenders are predominantly not interested in dinosaurs as they have a habit of becoming extinct and in any event dinosaurs can use their old fashioned ways to find the “food” source of a money loan that currently exist.

The next generation, well, the next but one (such as my children), will find this a very useful method of sourcing finance, providing they are able to allow themselves 5 minutes from the texts to their friends…..

http://www.guardian.co.uk/money/2011/feb/16/mortgage-assistant-app-of-week
Do you think this app will be a useful tool for house buyers? Let us know!

David Knapp, Partner
Residential Property