How To Purchase House

It is a subject which splits opinion on a daily, weekly and monthly basis – the housing market. The sector is pored over in minute detail, with many lenders, bodies and other organisations publishing figures at the end of each month, detailing average house prices, annual changes, monthly changes, regional breakdowns, discrepancies between asking and selling prices, and so on.Data released recently by the Royal Institution of Chartered Surveyors (RICS) says that house prices are showing their most pronounced rise for more than two years. This, in part, has been caused by a lack of supply, but should not take away from the fact that the proportion of surveyors reporting price increases is at its highest point since May 2007 – well before the outset of the credit crisis.It is difficult to ascertain just how accurate or reliable these surveys – and there are a great many – actually are. Most are released by groups or organisations that have a vested interest in the value of property going up. One of the more reliable reports comes from the Land Registry, which bases its figures on the prices houses are actually sold for, not what they are deemed to be worth by the owners or agents. After all, a house is only worth what somebody is willing to pay for it.That being said, there does seem to be evidence that an appetite for entering the housing market is returning. Reporting its figures for September, the National Association of Estate Agents said that the average number of house hunters registered at its agents had jumped from 238 to 294 in the month. Furthermore, a survey has found that it is cheaper to buy a home in the UK than it is to rent in all regions apart from London, although this assumes that first time buyers have sizeable deposits in place.What is certain is that at the end of September, there were more mortgage products to choose from than there have been for almost a year, with a shade over 1,400 on the market. There are still just a handful of products that offer buyers a loan worth the total value of the property, or even 95 per cent, but the 90 per cent loan-to-value market is now comprised of more than 100 products, which has not been the case for most of 2009.A number of new trackers have also been launched by providers and, with some predicting that the base rate of interest will remain low for some years to come, the more daring of potential homeowners have a number of competitive deals to choose from. There is still some way to go before the housing market can be considered in good health, but a number of providers have decreased their rates lately as well as launching new products that look competitive. Those who had given up designs on owning their own homes could do worse than giving the mortgage best buys a cursory glance once more.

It’s been a very dull summer this year, not only in the form of the weather but also in the housing market. Indeed, there are very definite signs throughout the UK that the property market is beginning to stall. Many homeowners put their property on the market in May or June hoping to achieve the double whammy of selling quickly and avoiding the production of a Home Information Pack (HIP). But many of those properties are still waiting to attract a buyer and estate agents are now struggling to sell properties in weeks that previously sold within hours.

However, although bad for sellers, this news has now finally given a glimmer of hope for those wishing to get on the property ladder. “We’ve entered a buyer’s market,” says Lucian Cook, the director of residential research at Savills estate agents. He believes that sellers need to be more realistic about what their properties will sell for and how long it will take.

Supporting that belief, housing market analysts Hometrack point to the significant change in the length of time that properties are taking to sell compared to three months ago. That particular gap in Greater London has shifted from two to three weeks, while the wait in Wales is now three times longer at over nine and a half weeks. According to Hometrack director Richard Donnell, “the froth is coming off the market” and there is a definite downturn in the market in the East Midlands, the north-east and Wales.

However, as with every trend there is the exception that proves the rule, and in this case it is property for sale in Chelsea, London’s most expensive borough. Unlike the rest of the UK, property in Chelsea is still being snapped up by eager buyers, fuelling a 32% rise in house prices in the borough of Kensington and Chelsea over the last year. So despite what might be happening in the rest of the UK, if you’re looking for property to buy in Chelsea, expect to pay at least the seller’s asking price for quite some time to come. Kensington and Chelsea may be immune to the workings of the UK property market at the moment but it may just be lagging behind the general trend.

That trend identifies the beginning of June as the time when interest rate rises finally started to bite, resulting in homes being marketed at prices less than the previous two months, up to 10% lower in the £500,000 to £1.5 million range. Sellers are now expecting to negotiate lower prices than advertised and take longer to get a firm offer.

So is all this bad news for anyone wishing to sell property in the UK? Many experts point out that this is not a crash, but the start of a predicted minor ‘adjustment’. They expect a recovery in the second half of next year, but whether or not that will happen remains to be seen.

Land Registry figures show that despite the credit crunch and the threat of a recession some areas in the United Kingdom have been performing well.

Just in the last quarter some areas have seen prices rise considerable, this comes as a surprise to many in such a difficult property market. Especially when you see the top performing region – Kingston Upon Hull!

Yes Kingston Upon Hull has seen average prices rise by 15.1% in the last quarter, now reaching £109,907. Behind this city are Windsor and Maidenhead with strong gains to reach an average price of £451,540 per property. This makes Windsor and Maidenhead the area with the highest priced homes in the country. In third place for quarter rises was Poole, were prices rose 12.7% to a new average price now of £308,684. There were other areas of the country experiencing impressive quarterly rises. Darwen, average price is now £120,703 and in Northumberland homes are going for £189,906.

Annual increases were led by Windsor and Maidenhead where prices have risen by 13.8%. Northumberland came in second place with 11.4 % and coming in third with a bumper third quarter was Hull with an annual increase of 8.8%.

The areas experiencing the greatest increase in sales, (which you probably would have guessed!) was Greater London coming in at 21,701. This was followed by Greater Manchester boasting sales of 8,303, West Midlands had 7,732 and fourth was West Yorkshire with 7,119 sales respectively.

The Land Registry figures show the average house price for the country now sits at £219,262 after a quarterly increase of 0.48%, giving an annual increase of 1.37%. Breaking it down the average for detached houses was £338,378; semi-detached came in at £196,539; terraced houses prices are £174,332 and flats are now on average £204,003. Total sales were £179,141.

Where ever you are looking to buy your new home or looking to remortgage your existing home it is worth using a mortgage broker who will search the whole market to ensure they find the best deal for you. Remortgages are an area more mortgage lenders are offering more than to first time buyers who pose more of a risk. It is very possible that you can find a good mortgage deal and depending on when you took out your current mortgage you can save hundreds on your repayments. Why not search mortgage deals now to see if you can save yourself some money.

According to the press the US housing market is in freefall and the UK housing market is following it. A market that only moves in one direction clearly offers investors opportunities. But how to trade house prices? One of the easiest ways to gain exposure is through spread betting where some companies now let you speculate on the average UK house price and even the average London house price.

Economies thrive on confidence and one of the pillars of confidence in the UK is the value of property. If the whole market grinds to a halt through lack of liquidity then there would be only one direction for it to go. Down. In a market bereft of buyers the prices must fall. With fewer and fewer people able to ‘gear up’ to pay the current prices then I fear this will be the scenario towards which we are heading. A major problem is that once a trend gets set it is very difficult to halt its momentum (witness the property situation in the US). Buyers shrink from putting themselves in hock when they fear that next week / month / year the house they have, so painfully paid for, will have dropped in value. And so stagnation follows. If the housing market locks up then many retailers who thrive on sales to ‘new owners’ will also fail and so on down a long line that ends with recession. At the moment, growth is just enough to keep the tills turning over but without some aid from our central bank I fear that this will not be the case for long.

If I was looking to buy a house now I would just knock 25% off the asking price on the basis that this is where forecasters expect the market to be in a years time. Presumably I would be paying a Mortgage (probably around 7.5%) during that time, have paid 2 to 5% stamp duty on the deal plus numerous other house purchase related fees. If the market did indeed drop as expected a purchaser at current levels could easily be looking at an overall negative cash/asset position of some 30-35% by next year once you include all of the costs. That does not sound too good.

Although for those people who are certain that the markets are in freefall, or for those who feel the UK is different to the US and less affected by sub prime fallout, the spread betting companies have come up with an interesting type of speculation.

You can now spread bet on the future UK average house prices.

How does it work?

Looking at IG Index they make their spreads based on “the Halifax House Price Survey produced by HBOS, the premier and most widely publicised indicator of the UK housing market. So, whether you want to profit from predicted market shifts or hedge against the value of property you already own, you can back your judgement against nationally recognised figures”.

Prices are given in points per £1,000. You simply ‘buy’ if you think the average price is set to rise or ’sell’ if you think it will fall.

The current spread of the Average London House Price (December) market is 258.1 to 264.1 points.

The current spread of the Average UK House Price (December) market is 163.1 to 166.7 points.

(Both December markets expire on 31 December).

So focussing on London, that spread is basically saying you can bet on London house prices being higher than £264,100 or lower than £258,100 on 31 December.

You bet in £x per point. Where a point is £1,000 of the house price. So if you are trading £15 per point and the average house price moves £5,000 (5 points) your profit / loss would change by £15 per point x 5 points = £75.

Taking the above London spread let’s say you think the prices will continue to fall. You could therefore Sell £20 per point at 258.1 points.

If the market does fall to let’s say 249.5 points (ie £249,500) then you would win / lose: (258.1 points – 249.5 points) x £20 per point = £172 profit.

Note that profits in spread betting are tax free*.

But if the UK market has a correction or simply stops falling or if London is more resilient to the current mortgage malaise then the average London house price could be £265,200 on 31 December.

Therefore if the market closes at, let’s say, 265.2 points then you would win / lose: (258.1 points – 265.2 points) x £20 per point = -£142 loss.

Of course, as the example above shows, as with all spread betting, care is needed.

Financial spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.

* Note that Tax Law may be different if you pay tax in a jurisdiction outside the UK, it can also change.