What does the New Year spell for property?

More of the same, me thinks…a little bit up, a little bit down, a lot of people not knowing what the bloo?y hell is happening! One thing that won’t change is the differences in opinion….

Some property experts suggest that prices will rise modestly over the next year and could be up by 16% by 2014. Others suggest that prices will fall by as much as 10% by the end of 2011.

So let’s look at some facts- The number of properties being bought and sold is a tiny fraction of what it was a few years ago. Latest figures from the Council of Mortgage Lenders shows that gross lending in Oct 2010 was £12.4 million, down from £13.6 million in Oct 2009 and the lowest October total since 2000. According to Nationwide we’ve ended 2010 with prices having slipped back again to roughly what they were this time last year.

Auctions are the barometer for the property market and from my perspective at the coalface, activity in the auction rooms is pretty subdued with some only selling 20-30% of the lots. I can’t see this changing radically as we move into 2011.

The impact of the Government spending cuts and public sector culling will trickle down to house prices. How much the value of your home might be affected could depend on where you live - areas where a high proportion of the population is employed in the public sector could be come off worse.

The other big hurdle is the further tightening of the mortgage market. Whilst rates are still at a historic low, proposed new regulations from the Financial Services Authority (FSA) could wipe out interest only mortgages. The end of the Special Liquidity Scheme in 2012 (which allows banks and building societies to swap naff debts with more secure government debts) may also result in a shortage of money available.

But don’t panic.  It’s possible to make the most out of any market conditions, and make sure you’re head of the game.  Here’s my advice….

If you are trying to sell

For some sellers, decent buyers are still as elusive as hen’s teeth. If you have to sell then you may have to think outside the box to entice buyers. I’ll be writing about things that you can do to help the sale in this column very shortly.

You may find that you are forced to rent your property out and buy your new home without selling your old one. If so, you’ll join the growing throng of ‘reluctant landlords’.

If you are trying to buy

If you can afford to buy, then as always, property is still a good long term investment. With prices having dipped and interest rates holding low, now is a good time to buy.

If you have enough cash to put down a 25% deposit or more, you’ll find that mortgages are a bit more plentiful than they were a year ago and current rates are attractive.  Even if you have a smaller deposit, mortgage deals for 85-90% Loan To Value are getting better. However the total amount of money being lent is about a quarter of what is was a few years ago.

Be aware that interest rates may rise over the next 12 months - so you need to factor this in when you are doing your affordability sums.

If you are a tenant

In London the demand for quality rental property outstrips supply and tenants are being ‘gazumped’ as Landlords are wooed by offers up to 10% more than the advertised rent. Across the country there has been a steady rise in rents - fuelled by demand from people that can’t get a mortgage and folks that can’t sell their house, but have to move. Landlords in some areas can now ‘cherry pick’ their tenants, so you need to make sure that you have a faultless track record for payment, offer financial guarantees and be the ‘ideal tenant’. If you are in a really sought after area, you may have to find two months rent as deposit to secure a home.

If you are a landlord

Whilst many landlords sold up in the wake of the credit crunch amid fears of a house price crash, the strong demand for rental property may entice them back. The impact of the Government Spending Review and cuts to benefits will mean more poorer families unable to buy their own home and looking  to rent.

If you are a landlord then there should be no shortage of tenants if you get the location and property choice right. However, it’s not all plain sailing. Housing Benefit will be capped (£400 per week for a 4 bedroom house, £340 per week for a 3 bedroom house, £290 per week for a 2 and £250 for a 1) from April 2011. However, in some city centres - the cost of renting is higher than this and so benefit recipients may be forced out of these areas into cheaper ones. London will no doubt see the most people pack up and go, but they may be replaced by wealthy foreigners coming to make the most of the weaker pound. Other city centres may not be so fortunate.

If you are thinking of investing in property, then you should buy properties that will fair better during these sticky times.

Buy:

•       2 or 3 bed houses rather than flats

•       homes that have something unique about them

•       properties that are new or nearly new (or older property that is up together)

•       houses that are individual rather than on a huge development with loads of other identical ones

What about Interest Rates?

Given that the Bank of England left interest rates unchanged at 0.50% in December, the question on many people’s lips is ‘How much longer will they remain at this level?’ Opinions on this differ, but many economists say that an increase in the 2^nd half of 2011 is likely. Some say they will rise to 0.75% by end of 2011, others think they will go a bit higher and some think they stay put until 2012. Oh Sod it! Have another drink!