View more on these topics

Is 2011 the year to buy property?

As we move into another year, the same questions appear to be forming on everyone’s lips. Will 2011 finally see the end of the current turmoil we have been in since the start of the credit crises several years ago? Will we see sustained and meaningful growth in the economy and is 2011 going to be a good year to buy property?

On the face of it, if certain commentators are to be believed, the turmoil in the property market is set to run well into 2013, with low interest rates, more quantitative easing and a fall in property prices of at least 20%.

But this is not a view that I subscribe to for several reasons.

For me, with the benefit of hindsight, 2011 will prove to have been the year that many of the best property bargains were bagged.

If we are to follow a general cycle of recovery in 2012 and beyond, it therefore follows that 2011 will prove to be the nadir for house prices and also interest rates. As the economy improves and confidence returns to the market, demand for property will grow once more. Given that there is a chronic undersupply of quality property, particularly in areas like London, house prices will begin to recover.

I still believe that house prices in the South East will still rise by around the 3% level next year as a whole, with any falls being concentrated in the first half of the year.

This will also coincide with an increase in interest rates as the Bank of England finally has to start controlling inflation, returning interest rates to more normal levels. The days of tracker rates at 2.5% and 5 year fixes below 4% will seem a long way away.

In fact, interest rate changes could be seen as early as the Spring, if people like Monetary Policy Committee member Andrew Sentance begin to win their argument that rate changes earlier rather than later are the best method of keeping a lid on inflation as the economy improves.

I would not at all be surprised to see a Bank Base Rate up at 1.5% – 2% by the end of the year if not sooner.

Certainly it is unlikely that we will see general mortgage rates in the latter half of 2011 being as competitive as they are now. For those looking to remortgage and finally enjoy the sanctuary of a fixed rate, I would be looking to do something within the next few months.

In other words if you do want to take advantage of low interest rates and competitive house prices, 2011 will seem to be as good a bet as any. In fact, it could prove to be the best time for many years to come.

The problem for many next year however, especially 1st Time Buyers, will be the ability to take advantage of such a situation given that mortgage lending will continue to be the preserve of those with large deposits, perfect credit and steady jobs. Those with just a 10% deposit, the self-employed and  erratic income sources will find the going particularly tough, being constrained by tough lending criteria and, for those lucky to still qualify, priced out by higher than average interest rates.

In fact, if the Council of Mortgage Lenders are to be believed, mortgage lending could well dry up next year due to a combination of having to pay back government loans, tougher capital adequacy requirements and the Financial Services Authority’s latest set of proposed regulation.

While on the whole I expect gross lending to be similar to the figures for 2010 of around £135bn, actually maybe a slight rise to £140bn, and net lending to almost certainly drop further as many continue to pay their loans back, I believe that this is more of a veiled threat to the FSA and government with regards to further regulation than anything else.

There is talk of more lenders heading back into the market next year and brand new lenders following the likes of Metro Bank to bring in some much needed competition, which, whilst not changing the landscape dramatically, will assist in bringing in some more lending capacity.

It does seem to be the case that at times like these many commentators like to make out that things are worse than they actually are, so it is down to each individual to decide whether to wallow in despair, or to concentrate on only that which you can control and get on with making the best of things.

There is no doubt that a recovery will be upon us in the next couple of years. Whether this is sooner or later does not really matter, as we all know that the best deals are done just before the upturn is in full swing.

Recommended

Week in NUMBERS

£1.9bn – the amount that Christmas shoppers will spend on their credit cards in the run-up to December 25th, according to Sainsbury’s Finance. £2,000- the amount UK present buyers throw away by failing to plan their purchases in advances, according to First Direct. 15°C – the temperature experts recommend you keep your heating at to […]

wreath.jpg
1

The mortgage broker’s night before Christmas

It was the night before Christmas, when all through the house,Not a creature was stirring, not even a mouse.The M&S stockings were hung by the chimney with care,In the hope that Santa Claus soon would be there. The children were nestled all snug in their beds,While visions of Xboxes and Wiis danced in their heads.And […]

Comments
  • Post a comment
  • TF 1st April 2011 at 12:44 pm

    On interest rates – Mike is mostly right, though I must say a measly 25bp increase is probably under cooking it a bit.

    The other big error (aside from inevitable large rate rise) in what is otherwise a pretty well argued article is that if mortgage supplt is going to remain at such low levels – what is going to drive house price inflation. Prices don’t go up if demand is supressed. Property prices may not fall but they are not going up for another 5 years either – so there is nothing special about 2011 for buying

  • Gray Haired Underwriter 28th March 2011 at 4:27 pm

    I for one can’t wait for a movement in interest rates – perhaps then the playing field between those benefiting from the Special liquidity scheme and those having to live of off retail funding will start to level out. It might also be worth pointing out that there is little incentive for the public to save at the moment and we need savers to fund future mortgages notwithstanding that there are at least 7 savers to every borrower. And what about the lack of income for those savers – just perhaps a movement in interest rates will actually mean more consumer spending by a greater group of the population. the last few years have benefitted the borrower disproportionately so perhaps it is time to give the savers a chance.

  • PJKD 18th March 2011 at 11:00 am

    Mike is absolutely right, the article writer has obviously been reading one of the newspapers that keeps campaigning for higher interest rates. Where does he get the 1.5%-2% by the end of the year from, and ‘if not sooner’ – we are already nearly in April, so what does that mean?. Japan is in meltdown and will have to sell alot of its overeas assets causing massive strain on the world stock markets, middle east is in turmoil; and Portugal and possibly Spain are going in to financial crisis not to mention the U.S. Oh, ‘lets put up interest rates then’. Interest rates will be no higher than 1% by the end of this year and probably not much higher by the end of 2012, as the initial reaction of them starting to rise threatens to put us in to another recession.

  • PJKD 18th March 2011 at 10:57 am

    Obviously been reading one of the newspapers that keeps campaigning for higher interest rates. Where does he get the 1.5%-2% by the end of the year from, and ‘if not sooner’ – we are already nearly in April, so what does that mean?. Japan is in meltdown and will have to sell alot of its overeas assets causing massive strain on the world economy, middle east is in turmoil; and Portugal and possibly Spain are going in to financial crisis not to mention the U.S. Oh, lets put up interest rates then. Interest rates will be no higher than 1% by the end of this year and probably not much higher by the end of 2012, as the initial reaction of them starting to rise threatens to put us in to another recession.

  • Mary Lockyer 21st February 2011 at 3:29 pm

    Not only do I agree with Mike Wilson,I would suggest a careful appraisal of the situation in the Middle Eastm and the impact this is already having on Fuel and Gold prices, and food prices will be impacted soon, the external pressures are not improving. Ship UK is holed below the water line, suggestions on a postcard please…..

  • Scott Lewis 16th February 2011 at 1:59 pm

    Well said, Mike. Finally, some sense on interest rates. All raising interest rates will do is cause even less money to circulate in the economy.

  • John O'Hearne 16th February 2011 at 10:47 am

    I couldn’t agree more with Mike Wilson, everyone is jumping on the ‘rates must rise’ band wagon. Rates going up will have no affect on the true reasons inflation is rising as pointed out by Mike. We need to make the best of the situation we find ourselves in which is a weaker pound, this works in our favour for exports. Also the government could do more such as looking at coporation tax to attract more foreign companies/investment into the UK.

  • Mike Wilson 3rd February 2011 at 8:16 am

    It’s surprising how many people are falling for this ‘interest rates must rise to control inflation’ line.

    Two things:
    1) Inflation is being caused by rises in global commodity prices. It is NOT being caused by domestic demand. Raising interest rates is the tool normally used to dampen demand. If you raise interest rates at the moment you might get a slight fall in prices of imported commodities (as sterling rises) – but, for the average consumer – the potential saving of maybe £5 a week will be more than offset by paying an extra £25 a week on their mortgage.

    2)As well as raising mortgage payments – causing already hard pressed consumers to have less money to spend – raising interest rates will make our exports more expensive – and we are told we need a manufacturing/export led recovery.

    Fortunately, the governor of the Bank of England understands these points. We won’t see meaningful interest rate rises for at least 2 years. We may get one 0.25% rise as a nod towards the idiots shouting for interest rate rises.

    I do wonder – how do these people think that raising interest rates will control inflation that has nothing to do with demand? All raising interest rates will do is depress an economy already on the skids and move us into depression.

    Which is why it will not happen.

  • GCB 25th January 2011 at 8:29 am

    Would that be the low interest rates unless you are a first time buyer

  • Ed Payne 10th January 2011 at 5:13 pm

    A good summary Andrew and nothing less than I would have expected from you. I think one interesting point is your view on expected rate rises. I think your probably about right with a potential 1-1.5% rise in the next 12 to 18 months. I expect SVR’s will increase even more though and this could lead to a further increase in remortgaging to trackers and fixed rates. If people find they are eligible for a deal that is.

    Of course Basle requirements are really what sits at the root of the lack of deals for higher LTV lending and this continues to remain largely unchallenged.

  • Martin Tapper 10th January 2011 at 12:05 pm

    Andy, Tom and Ancient Wisdom – win/win says I. A good time to buy and inflation to keep under control – GREAT! Mortgage clients will need advice again!

  • Ancient Wisdom...is a mortgage broker in N3 5th January 2011 at 4:47 pm

    The next 24 months will wreak havoc on homeowners and borrowers, including landlords, as rates rise.

    Supply of stock for sale will increase rapidly as many look to offload expensive loans and house prices will fall in every region except prime london freeholds. This represents a buying opportunity for those with 35-50% plus deposits only with A1 credit scores and those who can afford rates 0f between 8-10% – just look at inflation, its going to head through the roof from 2011 onwards, which means only one thing Andy and Tom….

  • Tom Cleary 5th January 2011 at 1:26 pm

    I could not agree more. Well done Andrew for accuratley summing up what the next twelve months have in store for us all…
    Only time will tell but I believe you have it spot on.

  • david 24th December 2010 at 12:42 pm

    This picture has been bugging me for a while, anybody else thinks he looks like rafa benitez?