Many retirees have a second home

Over recent years many non-homeowners have found it more and more difficult to get onto the property ladder, with lenders becoming more stringent about lending money to first time buyers and demanding higher deposits, which most first time buyers cannot afford. This has resulted in many non-homeowners giving up on their dreams of homeownership for now and having to settle for renting a home instead.

However, whilst the younger generation struggles to even get a big toe on the property ladder many people that are coming up to retirement are the proud owners of second homes. A recent survey revealed that one in seven couples in their fifties and early sixties own a second home, with an average £250,000 tied up in their second homes, not including any mortgage on the second home and not including the value of their main home.

At the same time their grandchildren and in some cases even their children are struggling to get the chance to own even one home. Many are unable to secure the deposit that they need to get onto the property ladder and many others cannot afford the repayments on their current income. This has left them facing the toughest challenge to buy a home out of any other generation. The figures were released recently by the Office for National Statistics. This is the first time that calculations have been carried out to see how many people within this age group own a second home.

Overall 13 percent of people in that age group were found to own a second property, which in some cases was abroad. Many will have purchased these properties before the boom, with the average price when they purchased the home being £30,000 but the value for the same property today being an average £163,000.

Tags: grandchildren, main home, boom, time buyers, couples, price, time, percentage

100% mortgage customers should watch out for negative equity

Over recent years the number of 100% mortgages being taken out has risen, with fewer and fewer first time buyers able to afford to raise the deposit to purchase a property because of the cost of properties in the UK at present. Many lenders will not offer 100% mortgages to applicants because of the risks involved, but there are still many lenders that do offer 100% mortgages to first time buyers, and many first time buyers have taken these to enable them to purchase a property without the need to have a deposit available.

However, some experts have warned that consumers that are now thinking of taking out a 100% mortgage need to consider the risk of falling into negative equity. House prices in the UK have already fallen unexpectedly in September 2007, and experts have warned that the fall in property values could continue over the course of the year. This means that those taking out 100% mortgages now could soon find that they are actually in negative equity if house prices do continue to fall as predicted.

One industry professional stated: ‘There are indications that the house price boom is slowing, so anyone taking out a 100% mortgage is risking being stuck in negative equity. And if you add hefty fees to your mortgage, the risk is increased.’ Negative equity is where you end up owing more on your property than the actual value of the property.

In the past six months alone the number of 100% mortgage deals has increased from 92 to 160. Many of those that have recently taken out 100% mortgages may already have found that they are slipping into negative equity following the September 2007 price fall.

Recent Additions:

• Homeowners are not as well off as tenants
• Increasing number of first time buyers look to brokers for assistance
• Gazundering becoming more commonplace
• Unions angry over insurance job cuts
• Watchdog to probe sale and rent back

Tags: time buyers, watchdog, hefty fees, first time buyer, boom, 100% mortgage, year

House Tipping Point On The Way

Figures from HM Revenue and Customs have indicated that the number of properties sold in England, Wales and Northern Ireland was at its highest point since the late eighties.

During 2006-7 the number of properties being exchanged was 1,859,000. The number of sales was up by 11% compared with then figure for the previous twelve months. House prices went up by the same percentage and are growing at more than their average rate over the long term.

The number of homes sold at the last peak in 1988 was 2,148,000 for England and Wales. In 1989 sales of property slumped by 25% and the house price boom that had run for six years fizzled out after the Bank’s base rate was pushed up and mortgage rates followed suit.

That crash in house prices in 1989 came as a shock to most of the nation who had seen house prices only going upwards for the previous thirty years. The Nationwide BS House Price Index showed that average house prices in the UK had gone up every year from 1955. But 1989 changed all that and house prices fell by 11% and it was 1998 before house prices reached the same levels as 1989.

The early nineties became the period of negative equity for many people, with many houses worth less than the mortgages owed on them. Unemployment went up and the recession bit. With homeowners finding it difficult to make their mortgage repayments, many fell into arrears and there was a rise in repossessions. Mortgage lenders had a glut of properties under their ownership and off they went at auction at bargain prices. Between 1991 and 1998 over 400,000 homes were repossessed and a million people were left without a home.

A lot of the sequence of events that led up to the 1989 house-price crash are being repeated in the current situation. The parallels are undeniable: house prices are out of reach of first-time buyers; house prices seems to be going upwards for ever; interest rates are on the increase; and mortgage rates are on the rise too. Also, the ratio of house prices to incomes is now at its record level, and customer debt is an ever-growing problem in this country. The noises coming out of the Bank of England suggest strongly that interest rate rises have not finished yet – there’s almost been a promise that there will be another quarter point rise in July. And, most strikingly of all, repossessions have started to rise again.

Property prices on average are still on the up and have been for eleven years, but it sure looks unsustainable. Many experts are still saying that they do not believe there will be a house price crash, but more of a gentle deflation. There is so much talk of the possibility, however, that it’s hard to see people continuing to fork out large sums for houses and the repayments at such high levels, when a downturn may indeed be just around the corner. The tipping point must be in sight. It’s just a question of how steep the drop is going to be on the other side.

Tom Smith
17th July 2007

Tags: drop, increase, boom, bank, equity, prices

Chancellor Darling Would Like Longer Fixed Rates

New Chancellor of the Exchequer, Alistair Darling, has indicated that he would like to see longer terms for fixed rate mortgages in the UK.

Darling would like to see more fixed rates lasting up to 25 years and on Monday 9 July he pledged a shake-up of the housing market following concerns that have been expressed regarding lenders only offering short term fixed rates in order to maximise their profits.

If homeowners have to renew their fixed rate deals more often, they will be liable for thousands of pounds worth of charges in arrangement fees, which have rocketed in the last couple of years. As interest rates have risen five times in the last twelve months, consumers are looking to fix their interest rates so they know what their payments will be for a reasonable period of time, but the number of deals beyond two years are few and far between.

The Chancellor said that longer-term fixed rates were available around Europe and would be useful in the UK to reduce volatility. He was unhappy with the incentives built in to products that meant mortgage brokers were more likely to advise homeowners to choose short-term products – and the associated high arrangement fees – some now nearly £2,000.

Mr Darling said that the Financial Services Authority have noted the problem of brokers wanting homeowners to return to them every two or three years rather than every ten or twenty.

The Chancellor also talked about the possibility of building on greenbelt land in the future as the lack of affordable housing in the South East in the last five years was now becoming a problem for the whole country. Last year’s Government target of 223,000 new houses was not met with only 160,000 being built. Mr Darling agreed that planning is a sensitive issue, but whilst determined to protect Britain’s heritage he said that if we don’t increase the supply of houses the problem will get worse and worse and worse. There was no way he would accept that housebuilding should stop.
   
Ex-Chancellor Gordon Brown, now Prime Minister, oversaw house prices that trebled between 1997 and 2007, and promised to end the boom and bust cycle in house prices, but as it is evident that we are coming to the end of a boom cycle in house prices, both Brown and Darling will be hoping that we don’t enter a bust period of falling or crashing house prices. However, with interest rates having risen from 4.5% last August to 5.75% last week the increased payments to be found by most homeowners will bring about a slowdown in the market.

Malcolm Harris, CEO of Bovis Homes, yesterday warned that any further rate rises could bring the housing market to a grinding halt. Average mortgage payments are now at a record level when compared with how much people earn.

Mr Darling acknowledged that housing is a huge issue and concerns more than the buyers, with parents and grandparents keen for their children to be able to afford housing, but a monthly repayment on a £125,000 mortgage s now £130 higher than it was last year.

Tom Smith
16th July 2007

Tags: fixed, Mortgages, longer, afford, house, rates, home