Housing and Finance in the UK

The last few months have increased the likelyhood of falling house prices in the UK.

These factors could contribute to housing price fall

1.  Increase in Mortgage Rates. Many banks are increasing their interbank lending rate; this is being passed on to consumers. Therefore, there is an increasing gap between the Bank of England’s base rate and the lenders Standard Variable Rate. This makes mortgages more expensive, despite base rate cuts.
2. Reduction in Number of mortgages available. The big mortgage lenders have been reducing the number of ’subprime’ and risky mortgage products. For example, 125% mortgages have been stopped and 100% mortgages are very rare. Mortgage lenders like the Nationwide have demanded a much bigger deposit from borrowers. With a marked fall in mortgage lending the demand for housing will continue to weaken.
3. People coming to an end of Fixed Rate Mortgage Deals. Many in the UK, were benefitting from being on low fixed rate mortgage deals. However, as these 2 or 3 year deals come to an end they will have difficulty switching to a new mortgage in the more difficult climate. Some will not be able to afford the new payments and so may end up with having to sell. Continue reading →

The North of England used to be a good place for first time buyers to get on the property ladder. However, in recent years the price of houses in the north has increased significantly, reducing the gap between north and south. The result is that many areas in the north are becoming as expensive as areas in the South.

However, the price of houses in the north has an increasing variance between different regions. For example within a city like Manchester or Leeds, house prices can vary by upto 80% between different areas of the city. Continue reading →

The decline of the US housing market continued with house prices falling 10% in the last month.

The house price falls are due to  excess supply, falling consumer confidence and a correction to the inflated house prices. There are worrying signs that US house prices have further to fall because the stock of unsold houses is still large. Also the financial turmoil in the credit markets means that the number of mortgage products on offer is decreasing. The cost of mortgages is also rising because of the difficulty of raising finance. This will reduce demand for houses.

There is also the concern that with house prices falling so much people will be deterred from buying because of the danger of negative equity.

However, it is worth remembering that many still buy houses to live in rather than an investment. Also the cut in interest rates from 4.25% to 2.25% should help improve conditions in the housing market in the coming months.

The UK stamp duty thresholds mean that buying a slightly more expensive house can lead to a big jump in the amount of stamp duty that you have to pay.

For example, if you buy a house for £249,000 the stamp duty is £2,490

However, if you buy a house for £250,000 the stamp duty rises to £7,500 or 3%

Clearly, if you are considering buying a house just above the threshold level, it makes sense to try and barter the price down and compensate the seller through other means.

For example, you might be able to get away with purchasing the furniture as a separate deal. Alternatively you could pay them just under the threshold and give them gifts in kind such as white goods to make up the loss.

Stamp Duty Thresholds 

Stamp Duty Calculator 

Homeowners pay

0% stamp duty on houses upto the value of £125,000

1% on homes priced between £125,000 and £250,000

3% for homes between £250,000 and £500,000

4% for homes valued at more than £500,000

However, the average first time buyer is still paying a lot more stamp duty because of rising house prices. It is estimated that the average first time buyer pays over £1,670 extra duty since 1997, when Labour came to power.

The number of houses valued at £250,000 or more has tripled over the past three years from 1.8million to 5.5 million in 2007. Therefore, many people are having to pay the extra costs of stamp duty, in addition to the extra mortgage costs.

Furthermore, house buyers are also faced with the cost of HIPS, which has been criticised for adding red tape and unnecessary costs to buying a house.

In the US and UK, the number of home repossessions has been rising as people with large mortgages struggle to make the necessary payments. These are 10 tips to help avoid seeing your home repossessed. The important thing is to adopt a useful strategy as soon as possible. Don’t wait for things to get out of hand before acting.

1. Maintain emergency cash savings. Ideally, this would be sufficient for 6 months without work. To build up an emergency fund, make saving a priority and think carefully about spending
2. Talk to your Mortgage Lender, before problems emerge. They may be able to help offer a temporary respite.
   Consider an interest only mortgage. Although it is not a good solution in the long term, it will provide a temporary reduction in interest payments.
3. Earn More. Could you take a lodger in? A spare room could make a profitable way to easily earn more money. In some areas the income from a lodger can pay for 50% of your mortgage. This is an effective way to avoid repossession.
4. Take Independent Advice from Debt Advice bureau’s and Citizen’s Advice Bureau’s they may be able to offer practical steps to avert repossession. Continue reading →

House prices in the UK now average at over £200,000. Yet, 15 years ago, they averaged less than £70,000. Some of the reasons for the large increase in house prices include:

Increase in Population. Boosted by immigration, the UK population now exceeds 60 million.

Increase in Households. There are more single people living alone now. This is due to social factors like higher divorce rates and more old people living alone.

Continue reading →

It is quite difficult to save enough money for house. Expensive house prices and large student loans mean many people in their early 20s struggle to get enough money for their first deposit. These are a few tips to make it easier to save money for a house.

Live With Relatives

This will make the biggest difference to saving money. When you live with your parents, you could save £100s a month in rent payments. Whether this is the easiest way to save money depends on how much your personal freedom would be restricted by living with your parents. But, expensive house prices are making many young people consider living with their parents for longer; don’t worry about any stigma of living with your parents. If you really want to save money this may be the most effective way.

Spend What You Need Not what You Feel Like

It is easy to get into the habit of spending because it is there, rather than buying the things that we really need. If we spend time in our favourite shops, invariably we will be attracted to spending money. If you only go shopping with a clear mind with what you really need it can enable big savings.

Continue reading →

There is uncertainty about the future direction of house prices in the UK. Forecasts range from a collapse of 20%, to moderate increases of 2-3%. The mean prediction is probably for house prices to stagnate. However, within this house prices are likely to vary within geographical regions. For example, Scottish house prices have continued to outperform the rest of the UK.

Are House Prices Falling Now?

Amidst all the gloom and dire predictions it is worth bearing in mind, House Prices in the UK are still rising. After falling in the months of October and November, house prices in December rose leaving an annual house price inflation of 5.6%.

It is also worth remembering that the UK Housing Market has a recent history of outperforming expectations and predictions. This is because many people forget the shortage of supply compared to demand. Interestingly long term predictions of house prices suggest a 30-50% rise within the next 10 years.

However despite these underlying strengths, arguably there are a few factors which are different in 2008 Continue reading →

House prices in the UK have increased by 179% in the past decade.

This is far higher than the consumer price index. The CPI has averaged 2.0%, compared to an annual house price inflation of 17.9%

Areas which have seen the fastest increases in prices include:

• London,
• South East
• Midlands

However, the outlook for 2008, appears quite different. Most commentators predict that national house prices will fall. Although, as I argue in this post - Housing Market crash?, I feel a crash is unlikely. Continue reading →