House prices – boom or bust?

Property booms are a real shot in the arm for those already nearing the top of the housing ladder. They’ve seen their property prices rise higher than they’d have dared to hope. The cost of borrowing has been low and house values wonderfully high. Life is not so good for first time buyers, desperate to make a start on their home-owning career, or for those needing to trade up to a larger home.

It depends on what you read, or who you believe, as to which way you think the property market may go in the future. Looking at housing history of the past few years may make people desperate to get in on the act and youngsters may think it’s now or never. They may well be right …….. or not!

One of the main spurs to the superb growth in the property market is the benevolence of the building societies. By relaxing their lending rules and encouraging people to “go for it” they have fuelled the rises. Historically, a buyer was limited to a mortgage of three and half times their income, or in the case of a couple, two and a half times their joint income. Now we have a new fast-track mortgage where as long as you can put down a 25% deposit, and are not a first time buyer, you can have a fast decision without providing actual proof of earnings.

This is similar to the self-certification mortgages, which are designed for the self-employed, but this time it’s on a mainstream mortgage basis. The company offering this innovative product is Alliance and Leicester. They say that they still credit score their customers and limit the loan to 75% of the value of the property and that by fast-tracking the mortgage, customers get the benefit of a very early decision, enabling them to clinch the deal.

With estate agents reporting rapid offers on properties, often by more than one prospective buyer,  which may go on to sealed bids, the ability to have an almost immediate decision on their mortgage gives buyers the best possible chance of closing a successful deal. Buyers are racing to exchange contracts and seal the transaction. Demand is reported to be so great in some areas that gazumping is reappearing, something common in the 80’s property bubble.

Conversely there are those who fear that this bubble may level out, rather than burst,  and expect a slowing of the house price growth. Some economists have been giving this warning with monotonous regularity and have been surprised by the continuing strength of the market.

Another aspect of the property market is the buy-to-let sector. Banks and building societies are relaxing their rules regarding rental income cover. Where they used to reckon you needed a monthly 125% or more of the mortgage interest to cover unexpected expenditure or periods where the property stands empty, they will now accept 100%. All well and good when things go right, but it only takes an interest rate rise or two to throw all the figures out and the 25% “buffer” was a useful tool.

You can only use your own judgement, but we feel that some degree of caution may be sensible. When applying for a mortgage, be totally honest with your answers regarding your income and outgoings. Don’t take on more than you can handle and try to build in some margin of safety.

For help and advice, an internet mortgage broker will be aware of all the best and latest deals. It’s a fast changing market, but they’ll trawl through the maze of mortgages and come up with some great deals, tailored to suit your individual needs.