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Twist Stick or Bust? How to Deal in the UK Housing Market, Spring 2010

View profile for Paul Hajek
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This is the fourth in my seasonal series on the prospects for the Housing Market in England and Wales, which began last Spring.

Everyone agrees that the market has improved. But, progress has been slow albeit above the expectations of some experts a year ago.

The bad weather of the early part of the year has meant, just like the flowers, we are about a month behind in where we would expect to be in a normal market.

So how will the housing market fare in Spring 2010?

The Good News:

Most Estate Agents have reported larger (although not overly significant) increases in Properties coming onto the market.

By and large, this seems to have been responsible for restricting the weak price growth that was a feature of the winter months.

The average growth in house prices in the year to February 2010 was 9%, although the average house price was 13% lower than in October 2007

Hometrack, the housing market research company shows the average time to sell a house now to be just over 8 weeks, which has stayed the same since the Autumn and Winter but down from 12 weeks at the beginning of the 2009.

The Stamp Duty blanket exemption for homes up to £175000 ended in December 2009, and has been replaced in the recent Budget with a further “exemption holiday” for homes up to £250000, but strictly limited to first time buyers.

Some major lenders have reduced their insistence on 20 -30% deposits.

Nationwide and Santander have all recently announced 90% mortgages and HSBC followed suit on the same day as the Budget.

There is evidence that New Builds, after severe limitations and curtailing have been back at Builders merchants buying those literal building blocks

House builders reported buoyant sales and rising house prices at the end of 2009, although they are by no means getting carried away.

Another sector of the market which has responded well is the Second Home market. Second homeowners spurred on by negligible returns on deposit accounts and the lack of value in the traditional second hand markets of France and Spain, have lead to an increase to a record high of 245,385.

The Not So Good News:

We are not out of the woods yet. Economic uncertainty is still a reality

The first fall in House prices since June 2009 was recorded in February, although there has been a further slight increase in March according to the Nationwide Building Society

There is evidence that the mortgage companies have staved off wholesale repossessions, but with unemployment still perhaps not yet peaking, there will be room for more property onto the market to potentially weaken prices.

Mortgages have been as hard to come by as last year and the number of agreed home loans fell slightly in February 2010, from 48099 to 47094.

Any sustainable recovery would need 60000 or so approvals per month

The so called accidental landlords, forced to rent to avoid loses on their investments, who have shown signs of stirring, may yet be further encouraged to put their properties on the market.

A warning shot has also been fired for activity in the post £1,000,000 homes where Stamp duty will be increased from 4% to 5% from April 2011.
In the short term activity at the top end of the market could be boosted by saving of £10000 or so next year.

High earners will be squeezed with estimates that people earning over £180000 per annum will need to find approximately another £25000 to purchase compared with last year

It is usual that activity is dampened prior to an General Election with a spike in activity afterwards.

In 2005, the quarter before the election prices were flat at 0.8%, but went up to 5.2 % in the next quarter.

We all know about problem with relying on statistics and what was different back then was the relative ease in obtaining mortgage finance.

Should you Sell?

It is no longer predominantly a Sellers’ market, which was the case last Autumn and into the Winter.

The increase in supply is not sufficient in itself to see a re-emergence of a buyers' market.

A necessary rebuilding of the depleted housing stock, which Estate Agents were complaining of at the beginning of the year, is clearly desirable.

Over the last six months of 2009 the supply of homes for sale grew by just 1% while sales volumes grew by 20%.

If you are only selling, provided you did not purchase at the height of the market in 2007, a reasonable return on your investment is likely: the better return depending on how long ago you purchased the property.

There is no likelihood of significant house price inflation in the foreseeable future.

Should you Buy?

The winners in this recession have undoubtedly been cash purchasers or low loan to value buyers picking up the best mortgages.

The Housing Market is still dependent on improvements in loan availability and a return of greater economic confidence.

If you are a first time buyer who can avail themselves of the new “stamp duty holiday” the clock has started to tick. Now is a good time to purchase.

Again, the deposits required are not as stringent as in the last year and more people should benefit

Twist Stick or Bust then?

An outright majority in the General Election would for most commentators be the best outcome not only for the housing market in Spring 2010 but throughout the rest of the year

In such a climate of economic uncertainty, it is highly unlikely interest rates will rise in the short term.

A change in Government or no, the outlook, nevertheless, is for  tax rises, either directly or indirectly. This may depress the market.

But, if more property were to come to market this could indicate a growing optimism. It would suggest a revival of confidence among some homeowners in their ability to get a mortgage, to stay in employment and ensure that they meet their repayments. These were cited as concerns which lay behind owners’ reluctance to sell in 2008 and 2009.

Yet again for most homeowners, employment stability and mortgage availability will be key features determining the strength or weakness of the housing market in the coming months

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