Housing and Finance in the UK

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.

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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 →

“In 2000 the average price was 108,891 pounds; it is now more than twice that at £230,504 pounds.

Therefore, when we concentrate on decelerating house prices it is important to remember how much they have risen.

In the past 10 years, the average house price in the UK has been driven higher by various factors:

• Limited Supply.
• The Supply of new houses is at a very low level, with less than 150,000 houses being built last year. This is less than demand for houses.
• Increasing demand from:
• Lower long term interest rates
• Rising population (especially from immigration; e.g. Polish immigrants)
• Increase in number of single person households - result of increased divorce rates e.t.c
• Low Unemployment and strong growth
• Strong Buy to Let sector - including foreign investors looking to take advantage of strong rental incomes and capital gains.

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Some factors that can cause House prices to Fall

Rising Interest Rates

Increased interest rates increase the cost of mortgage interest payments making it less attractive to buy. Some homeowners may not be able to afford rising mortgage payments so they have to sell.

Sometimes there is a time delay between increasing interest rates and affecting house prices.

For example, in the UK, interest rates rose 5 times since August 2007. However it is only now in 2008 that people are having to remortgage fixed rate deals. Therefore, people on a fixed rate mortgage deal are seeing the cost of mortgages increase significantly.

Even a small change in UK interest rates can have a big effect on prices. This is because mortgage payments are a high % of people’s income
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Since 1997, UK house prices have risen by 213%. The current annual rate of house price inflation is 6.3% (although this hides recent monthly falls. How do UK House prices compare to the rest of the world.

These are some selected statistics for House prices in the rest of the world since 1997

• South African House prices  - 393% (current 13)
• Ireland House prices - 240% (current -2.8%)
• Spain House prices - 190% (current - 5.3%)
• Australian house prices - 159% (current - 10.6%)
• Singapore house prices (current - 27.6%)
• New Zealand house prices 123% (current 12.7%)
• Switzerland house prices 149% (current 11.6%)
• France house prices 144% (current 6.8%)
• United States House prices 116% (current -4.5%)
• United States (City house price index) 165% (-5.6%)

Generally, the problems in the US housing market are starting to spread. It is unclear whether this is due to the global credit crunch or local factors. However, one interesting thing is that when we talk of a US boom in the housing market, several other countries are more significantly affected.

For latest news on UK house prices, UK mortgages and the general state of the housing market, visit our Housing Market Blog.

Recent articles include:

• Is 2008 a good time to buy a house?
• Predictions for UK House prices 2008
• State of Buy To Let Housing Market

After an unprecedented decade of rising house prices, it looks like the long boom in housing prices is coming to an end.

According to the Royal Institution of Chartered Surveyors, house prices in some regions have fallen for the first time since 2005. Whilst these price falls may be temporary and a result of volatile factors, there are many factors that explain why property prices may be set for a fall.

• 5 Interest rate rises are increasingly starting to have an impact on disposable income. The delayed effect is partly because many on fixed rate mortgages are now starting to have to get a new fixed deal at a significantly higher rate.
• Difficulty of first time buyers getting on the property ladder.
• Slow down in growth of households, especially in the north east.

London was one of the few areas to maintain rising house prices. The strength of the London housing market is partly due to the record levels of city bonuses. It is estimated city bonuses have reached £14 billion this year. However, with the turmoil in the stock market, it is likely this source of extra demand may start to slow next year. Nevertheless, combined with the factor of immigration pushing up demand in the South Easty, this year there has been an increase in the north south divide in house prices.

Will House Prices fall? 

Boom turning to gloom at Guardian 

1. Bypass estate Agents.

Estate agents can take up to 2% of the house price; they are making a very nice profit at our expense. However, it is possible to buy a house without using estate agents. There are schemes which enable homeowners to buy from lists of house not using estate agents. For example, you may be able to find a property broker in your area You will need to employ solicitors yourself. But, despite the extra work, it could be very profitable for you.

2. Home swaps.

An increasing number of people are signing upto schemes which enables you to swap houses, with people in different areas. This can save alot of costs and hassle. A difference in the value of the house, can be overcome through paying (or getting paid) a top up fee. For example, Gum Tree homeswap scheme

3. Negotiate existing furniture / white goods into the deal.

Usually when you buy the house the fittings are not included. However, it may be possible to negotiate a discounted price for keeping the furniture and white goods. This saves the hassle of moving and refitting. It can save money in fitting the house.

4. Choose your area carefully.

House prices can fluctuate significantly, even though they may be only a few miles apart. Just because an area is more expensive doesn’t mean that it is necessarily better for you. For example, some areas may be very expensive, because they are in close proximity to good schools. If you don’t have children about to start school, it is best to avoid these areas and avoid paying the “good school premium”

5. Take your time in buying, but don’t wait for perfection.

The great difficulty with buying a house is finding the best value house for your needs. By looking at the widest possible selection of houses you have the best chance to get the best value house. This can save you spending more for facilities you don’t need on a house. At the same time, you need to avoid the trap of waiting for the perfect house to come along. The perfect house doesn’t exist, as there will always be some feature that could be better. The thing to do is to rate houses out of 10 for best value. When you get 9 and 10s be prepared to make a serious bid. If you wait for too long, you may find that house prices are rising, giving you a worse choice the longer you leave it.

6. Save Money on Stamp Duty.

If the house price is just above the stamp duty threshold £250,000 (3% tax) Try negotiate a price just below, you might be able to compensate through giving white goods to the value of the discount

7. Cut the Cost of Your Mortgage.

Avoid paying a fee to a mortgage broker, many will find the best mortgage for free. Make sure you have the most competitive rate by checking out a wide variety of deals. Don’t just go with your regular bank and assume they will be best.

Falling house prices can lead to a loss of confidence in the housing market; but, in the short term your mortgage is unlikely to be directly affected.

If you bought a house costing £160,000 with a 90% mortgage. Your mortgage would be £144,000. A fall in house prices would still leave you with a £144,000 mortgage. It is just that the % of the house that is covered by a mortgage will increase. Your mortgage repayments will only change if there is a change in interest rates.

1. Negative Equity.

If you bought your house recently then falling house prices could put you into negative equity. This means that your mortgage debt will be higher than the value of your house. This is particularly a problem if your mortgage is close to 100% of the total house price. Negative equity, in itself, is not a problem. If you continue to live in the house and make your monthly mortgage payments your situation will not be affected. Negative equity is only a problem if you need to sell your house. For example, if you could no longer meet your monthly repayments, and the house was repossessed, then you would still owe money to the mortgage lender. This is a particularly painful position to be in.

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