The current market probably confounds many consumers, should you be saving in order to have a bigger deposit in the belief that the property market has bottomed out? Or do you buy now in the belief that the market has bottomed out and that any potential equity loss is worthwhile?
I met with an economist yesterday who shall remain nameless, but he made an excellent point, if you are buying a house to stay in yourself then really what you are doing is giving up future earnings in order to obtain an asset today, if that asset price goes down then it means that potentially you sacrificed a portion of your future earnings that you didn’t have to but most importantly it was all based on future earnings, and because that is somewhere down the line it was not really a ‘loss making’ proposition. This guy was and is a property bear but primarily on the investor side. It was an interesting point of view and one that I had not really considered in the past.
As a mortgage broker in Dublin we can safely report that the interest in property is down, this bleeds into our industry in the form of reduced applications. In the UK the situation is similar, there the ‘Mortgage Intentions Index‘ fell to 72.5 which is the lowest it has been since they started doing it. This is not only due to a fall off in mortgage availability, but also to sentiment and rising difficulty in obtaining finance, the worrisome element of the UK research is that there is a rise in the people who are considering ‘unsecured’ finance, this is typically much more expensive than mortgage finance, credit card and overdraft indices rose sharply recently which means that taking the handy option of a large ‘personal loan’, which may well be described by your bank as a ‘home improvement loan’ or a ‘debt consolidation loan’ will cost you a lot in the long run.
I seem to constantly be saying ‘get independent advice’ when people ask me should they go to a bank or mortgage broker, however, information such as this only re-enforces this belief, unsecured finance can sometimes be used as a second charge on a property and the higher rates mean you should find out the cost of that finance versus getting it via a more cost effective manner, in particular if it is for home improvements.
In the UK new home mortgage approvals fell 23% in the year to June, and down 67% from June 07′ which is another dark cloud on the horizon in terms of credit facilities, banks literally don’t have the money to lend at the moment, and at the same time people are hesitant to borrow. One factor that will play on many people’s minds will be the ‘switch dilemma’ which is the issue you face of leaving your present rate if you are on a tracker to something else where the margin is going to be higher for the life of the loan, in this scenario people may actually need the money but they won’t try to obtain it because the premium on the new loan will be too much. And that is perhaps the reason why we are seeing personal lending on the rise in the UK.
Net lending in the UK is up for the year to June 2008 however, this is mainly due to refinance operations, the slowing market will likely be the drive lending to lower levels in Q3 & 4 but we’ll just have to wait and see about that when the figures are released.
In the meantime the rates on deposits are high, personally I would believe that first time buyers would be best advised to sit tight for a while and avail of those rates as we have felt for some time that prices will continue their downward trend until at least the final quarter of this year, it really depends on the acceleration of the trend, if it moves slower then it will take longer, hence our belief that faster is better. Having said that, there are brave souls out there who feel they have found value in certain buys, if you have found your ideal location (you were probably priced out of it in the past) and are willing to gamble some of your future earnings on it then by all means pounce when and where you can, however, make sure you get independent advice!