02.12.08 by Andrew Montlake

House Prices Trough – Is Now The Time To Buy?

Looking forward to next year, (where has this year gone?), I am already being asked about house prices and mortgage levels.

It is dangerous times to enter the prediction game, who would have thought we would have seen all the issues we saw this year, and it seems there are surprises lurking around every corner.

However, as far as house prices are concerned my answer is, rather flippantly, does it really matter! Let me explain.

I do believe we are near the bottom of the cycle, in the trough if you like, which will last another 6 – 9 months or so. That being said, anyone who buys a property next year will look back in 5 years or so and be rather pleased. It does not really matter where the actual bottom is, and it is difficult to judge it that accurately anyway, as property is meant to be a longer term investment. In which case anytime from now is a good a time as any to buy.

I think the rate of house price falls will decline to zero over the coming months and hobble around the bottom for a while, and whilst there are many people waiting to pounce in the next few months, any quick price rises that would normally be expected will be kept in check by more repossessions going onto the market.

In essence however, I expect the best deals to be done in the next 3 – 6 months, mainly by canny investors.

As far as mortgages are concerned, many first-time buyers are initially being put off by the higher deposits needed, and the fact that rates for 90% loans seem high. However, my esteemed colleague in Bristol, Sarah Fox-Clinch has an interesting point to make.

“For a 90% loan to value purchase or remortgage, we are currently looking at fixed rates starting around 6.35%. On the face of it, this seems highly uncompetitive when looking at a remortgage deal where the client is on an SVR at 5.00%. However, as a purchase product, is this really so bad? Is 6.35% really that high a rate? Especially when looked at in a more historical context.

Lenders at present believe they are risking negative equity on any 90% loan at the moment and in my view, 6.35% doesn't seem that high a price for taking such a risk.”

I agree. People were taking out mortgages of 10% or more 15 years or so ago, and we have been spoilt by the low rates of recent years. If it gets you on the property ladder, and the loan is affordable, in 5 or 10 years time you will be sitting on an asset that has appreciated in value – perhaps dramatically once again.

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