House prices: The stagnant market and you
- 2 September 2010
- From the section Business
The UK housing market has reached a plateau this summer - a situation welcomed by some, but a source of despair for others.
The Nationwide building society says prices have "stagnated", with no change on the latest three-monthly comparison of average property values.
Meanwhile, the lack of supply and demand of home loans means that lending in the UK mortgage market is at very low levels.
So how does this affect different groups of people looking to move home, and what can they do to improve their chances of getting the mortgage and home they want?
Ray Boulger, of mortgage brokers John Charcol, and Tim Hammond, chief executive of the Homebuyer Centre, give their views.
A social divide is likely to widen owing to difficulties in securing a mortgage without access to a large deposit, according to Mr Boulger.
He says that young first-time buyers who get financial help from their parents are much more likely to get on the property ladder.
More mortgages with a deposit of less than 25% are available now than was the case a year ago, he says, but the bigger the deposit, the more competitive the rates.
He says a rough estimate would show that an extra 5% deposit offered would make a mortgage interest rate 0.5% cheaper.
The chink of light for first-time buyers is the fact that prices have stagnated and show few signs of rising quickly in the near future.
This means that there is less pressure on buyers to put in an offer quickly, fearing that the price would keep going up if they delay for a few months.
Mr Hammond says that the increasing numbers of properties coming on to the market mean first-time buyers can haggle on prices.
"Take asking prices with a pinch of salt," he says, suggesting that buyers look seriously at two or three properties, rather than setting their heart on one which might be overpriced.
Family moving to a bigger home
Those with a relatively small amount of equity could find themselves in a similar position to first-time buyers, according to Mr Boulger.
As with first-time buyers, it is important for them to maintain a good credit score in order to secure a competitive mortgage.
Lenders may now also ask for the last three months of bank statements, so extravagant spending might be better put on a credit card and then paid off immediately, rather than on a debit card where the spending is obvious to the lender.
Ensuring all bills are paid on time, making sure they are on the electoral roll, and not regularly switching and closing bank accounts would also help to keep a good credit score.
Mr Hammond says that families should arm themselves with all the price information that is available on the internet.
They should also pay the most attention to the differential between the price they are selling and the one they are buying at - and ensure that this is within manageable levels.
Pensioner looking to downsize
With a lot of properties coming onto the market, there is no need for those retiring to rush into switching to a smaller home, Mr Hammond says.
The very fact they are downsizing means that their equity will go further, Mr Boulger says.
However, lenders are reluctant to give home loans to people who would still be paying them off after the age of 75.
With the default retirement age expected to be scrapped, the number of people working at this age is likely to increase.
Borrowers should check their timing to ensure their mortgage is paid off by the time they eventually do retire, he says.
Moving to a different area of the UK
The housing market varies across the UK, with different property values and different rates of price change in local areas.
Prices are affected by local issues, such as schools, new developments, and the future of big local employers.
However, over time, prices do tend to catch up in areas that have lagged behind the national average, or slow down when prices have been over-inflated, Mr Boulger says.
So flexibility in timing when to buy is key, he says.
"It is worthwhile looking at the trend in prices where you are looking to move to, and making a judgement," he says.
Mr Hammond agrees, saying that people often do not do enough homework on the local market because of the distances involved in searching for properties somewhere new.
Meanwhile, the self-employed face a further hurdle of mortgage lenders' doubts over giving home loans to those with a variable income.