Find out what is going to happen in the UK Property market in 2008.

The aim of this UK property predications article is to give the property investor or the average home owner an in depth insight into what might happen in the UK property market in 2008.

Firstly let’s take a look at what happened in 2007 and the early part of 2008.

The debacle of what happen in the subprime mortgage crisis sent a shock wave through the financial World. Northern Rock is probably the biggest name causality of the credit crunch, in the UK to date.

Any business that relies heavily on debt and borrowed money has been hit hard. Banks and financial institutions are tightening the purse strings and property investors are feeling the squeeze and many are nervously looking at other ways to reduce the risks in their portfolio. Investors are particularly nervous if they are coming to the end of any fixed term mortgage agreements.

There is a good chance new mortgage rates will not be as favourable, hence potentially taking thousands of pounds out of the investors pocket.

Are we on the road to another recession?

Many people are looking at the property market crash of the 1990’s and are wondering if we are heading down the same route now.

The bottom line is that there is always a chance we could be going down that same path; however, the likelihood of this happening today is currently very slim. The reason we are unlikely to be heading towards another property market crash is because there where two major contributing factors that helped bring down the property market in the 1990’s that don’t currently exist for us today, these are:

1. Unemployment was sharply on the rise.

2. At their peak, interest rates were almost 15%

How is capital growth going to be affected this year?

All indication are that property prices this year will be much flatter than they have been for a long time. In fact, for the first time in years we are now beginning to see a few months in a row where the average price of property in the UK is actually going down instead of up.

However, locations such as Scotland and London are still bucking this trend. For short-term capital growth there are no real safe bets at the moment, but the safest of what is on offer tends to be in Scotland and down south in places like London.

Nonetheless, there are still location in the UK that are potentially undervalued and should still see a slow but steady price increase this year.

What are the facts?

While the media is predicting negative equity and zero percent price rises this year, the truth is nobody really knows what the future holds.

However, when it comes to UK property predictions, history does prove one thing. Time and time again the media are using pure guess work when it comes to the property market and they more often than not, get it wrong. The job of journalists and reports is to sell newspapers or get people to watch them on TV. Unfortunately, often times this means sensationalising stories which in the end, end up having little resemblance to solid facts.

At the heart of the UK property market is the basic law of supply and demand. So, while demand far out strips supply then we can confidently predict that long term prices will increase. There are also important economic and social factors that have to be analysed at the same time, but as a general guideline, this law normally holds true. However, that is not to say that in the short term they won’t remain stagnant or even go backwards.

The Good News.

There has been a recent announcement that the Bank of England is going to make 50 billion pounds available to lenders in the UK to try and revitalise the flagging mortgage market. This is an extremely proactive and unprecedented measure to try and keep the UK economy as stable as possible.

Now, it may take several months for property buyers to feel the benefits of the money, but long term it should help to ensure the economy does not end up in the same mess as it did in the 1990’s.

The Conclusion.

Even though 2008 is likely to be a volatile year for property owners, for the astute investor who has a big cash reserve and knows where to locate the undervalued properties, because of less competition from other investors who are trying to sit out the current uncertainty in the market, this year could prove to be one of their most profitable ever.

Times are hard when financial burden is on your shoulders, when debts are heaping upon you and you have nowhere to look except your house. However, you need not to worry since financial crunch can happen to anyone in today’s dynamic times of fast lifestyles and increased consumer and luxury needs.

The economic exigency in your life could have arisen out of various reasons. The common reasons why people have to meet with such situations often includes the cases such as that of divorce. At times, defaults on your debt payments can bring things to a head such that you might face the threat of repossession of your house. In such a situation, rather than lose the house, it is better to sell house fast as to repay the debt and be clear, while also saving your credit report from getting sullied.

This is a popular and also a preferable means to drag you out of your dire situation. You need to sell your house fast as to recover the equity from your house and quickly get access to a large amount of cash that can relieve you of the debt quandary. This quick house sale scheme ensures that you can bank upon your most trusted asset: your home.

At the same time, since it involves your property, to sell house fast may not be very easy. You have to take care of paperwork as well. This is besides the hassle of finding a potential buyer who should not deprive you of a good price for your home by bargaining which is unfavorable to you. The best thing to avoid such circumstances is to avail the help of professional property dealers, who with their knowledge of the real estate market, can help you with valuable advice and also fetch a good price for your house by exposing your property to a wide range of interested buyers through proper advertising and marketing.

The problems in the Australian housing market pale into insignificance beside the woes of credit markets in the wake of Lehman Brothers bankruptcy, but they do tell us something about the Australian economy.

Yes, housing, especially new homes, are depressed with a low level of starts, especially in NSW.

But unlike the US where new home starts are 30% or so under what they were a year ago, our home building industry isn’t on its knees, despite what you might read from time to time.

There is some life, not much, but its still there. And that tells us a lot about the slow, but solid health of the economy.

The Australian Bureau of Statistics said that 38,348 homes were started in the three months to June, a seasonally-adjusted drop of 3.7% on the March quarter.

That was the lowest quarterly figure in a year, but given the sharp rise in the cost of money over that time and the drop in consumer confidence, it was an understandable outcome.

It gives an annual rate of just over 153,000 new homes a year, 20,000 under what’s really needed.

But in a tiny bit of encouragement was that new private home starts were up 4.1% quarter on quarter and other private new dwellings (home units etc) fell a very sharp 17% in the June quarter, compared to March.

And, compared to the June quarter of 2007, there was a 2.1% rise in total new dwelling starts and a 5.4% rise in new private home starts. Other new private dwellings were down 3.7% in the June quarter, compared with the June 2007 quarter.

So while activity has been quiet and well below the capacity of the industry (as the Housing industry Association has been pointing out), our industry hasn’t down and out like the debt and loss-riddled US and UK sectors.

Westpac yesterday cut its fixed mortgage rates for new and existing customers, a sign that funding pressures continued to fall, but also an attempt to position it as being ahead of the rate cut curve.

The new rates apply from today, but until it or other banks cut the extra margin of half a per cent or more built into its variable rates, there will be no reason to boast.

Variable rates are by far the most popular form of mortgage and it would take a real upsurge in demand for housing loans to see some rate cutting competition emerge, but that in turn would horrify the RBA and prompt a rethink on interest rates.

 

Remember the RBA is worried about inflation and has long regarded the housing sector as a good indicator of consumer and economic expectations; and inflationary pressures, particularly on building material costs and wages.

The abs said that seasonally adjusted estimate for the total number of dwelling units commenced fell 3.7% in the June quarter which follows a revised fall of 1.0% in the March quarter; the seasonally adjusted estimate for new private sector house commencements rose 4.1% in the June quarter following a revised fall of 5.3% in the March quarter.

(That’s quite a turnaround and is a stark contrast to the unremitting gloom from the US and UK).

The weakness has tended to be, if anything in the “new private sector other residential building” part of the industry, to use the descriptor of the ABS. Essentially its apartments and units, much of it driven by investor demand and activity.

The home unit and residential sector in places like the Gold and Sunshine Coats, parts of inner Sydney and Melbourne (Docklands) has cooled.

So much so that Raptis, the big Gold Coast home unit developer is in trouble, looking to raise hundreds of millions of dollars of new money in the next month to remain alive.

It has up to $700 million of new properties and projects it could sell, if buyers appear. That’s not very likely given the tough financial climate at the moment.

If anything the downturn in commercial building finance has affected this part of the industry, rather than new private building which tends to be financed by private individual mortgages.

Seasonally adjusted, the estimate for new private sector other residential building fell 17.1% in the June quarter following a revised increase of 9.5% in the March quarter.

The housing figures provided the backdrop to the release yesterday of the Federal Government’s five-year $512 million housing affordability fund at a residential development in suburban Canberra.

In a bit of PR spin, Mr Rudd said the fund would bring down the cost of houses and new developments by up to $20,000 by reducing infrastructure charges and speeding up planning approvals.

So perhaps that might be better applied to NSW where the problems seem to be concentrated. Despite being the biggest state, the biggest population and the largest home building sector, NSW is now not even outbuilding Queensland, let alone Victoria.

According to the ABS figures around 6,990 houses were started in NSW in the June quarter, against 9,850 in Victoria and more than 10,700 in Queensland.

No wonder the recent national accounts showed NSW contracted in the June quarter: the housing performance played a big part in that grim news.

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The global financial World is in a state of more turmoil than most people can ever remember seeing. The rumours of a UK property crash are abundant and many people are rightly asking, “is it the wrong time to buy property in the UK?”

But are we really on the verge of the property market crashing down around us?

This article will explore what’s currently happening in the financial market and whether now is the wrong time to be buying property in the UK. It’s goals is that after reading it you will have a much better understanding of the current financial climate and how you can still make money in it.

What’s happening in the financial markets around the World?

The speed and the depth of reach of the fall out from the sub prime financial crisis in the States has taken many investors and financial organisations by surprise. Many people knew that the stability of the US economy had far reaching implications for the rest of the World, but just how far, is only just becoming apparent.

There has been a panic amongst lenders in the UK and a reluctance to really admit how hard they have been hit. Banks are no longer lending money to each other as freely as they used to and they are all suspicious of the state of each others finances.

All the big lenders appear to have been hit heavily. Some of them are now admitting it openly and asking for help from shareholders while others are determined to try and put a brave face on and try to brave it alone.

The Bank of England is desperate to keep the mortgage market stable and the economy going forward. There is confusion within the Bank of England as to what is the best way to achieve this, but as a result of them knowing something has to be done, they have decided to make 50 billion pounds available to try and help curb the problem.

One thing that that has become abundantly clear is that many banks and financial organisations appear to be run by people with very little business and financial savvy themselves. Criteria that have been set in the past for lending purposes seem to have gone out the window and one has to ask oneself, on what basis where they set in the first place?

On the whole, 100% plus mortgages seem to have been abandoned. Big players in the buy to let mortgage market, such as Mortgage Express, have pulled key products, such as their same day remortgage product and are now insisting investors have had their property for at least 6 months before being allowed to remortgage.

Many property investors are finding life difficult as they are having a hard time finding mortgage products that make buy to let investing financially viable.

Surveyors seem to be running around like headless chickens, not really having a clue how to value properties in the current climate. While they where confident of their valuations in a more stable market, bring in a little instability and their valuations seem to be on shaky ground, with each surveyor looking over his shoulder and being scared to overvalue properties, hence many times undervaluing them.

Off plan property investors are being especially hard hit since surveyors are being particularly caution with anything that it is difficult to get comparables for. Properties that where bought off plan 18 months ago are now coming to completion and are not worth what they where projected to be worth.

The lending World has shown how fragile it actually is and the truth has been laid bare for all to see.

Should we stop buying property in the UK altogether?

Good question. And with the speculation of a UK property market crash, it is a question that many investors are asking. However, experienced property investors, have seen similar things before, and because of this, they don’t get caught up in the endless speculation of what’s happening in the property market. They know that they just need to focus on buying BMV properties based on local affordability that have good rental yield and they will be fine.

They are confident that if they can buy these properties for around 4 times, or less, of what the local average salary is and they can manage to get a reasonable rental yield, then long term they are onto a winner.

However, if you are looking at buying in areas where the property prices are 7-10 times the local affordability then you are potentially on shaky ground.

These are great learning times for the positive thinking UK property investor. For the next few years you probably won’t be able to complacently buy a property anywhere in the country and just expect it to rise in value. Now, is the time when you have to learn your craft properly. It’s time to go back to school.

For the investors that understand the property and financial markets, and learn how to work with them in any and all conditions, then the next few years promise to be times of learning and expansion, not contraction. Yes, there are difficult times a head, but out of huge challenges can come tremendous growth.