What a difference a year makes. Compared with this time 12 months ago, anyone reading the headlines over recent weeks could be forgiven for thinking that the property market is in a state of total freefall. Although times have certainly changed from the heady conditions of this time last year, we mustnt forget that there are still opportunities in a slower property market.
My personal feeling is that, although confidence has been eroded and prices are dipping, the prime sector of the market will outperform general trend by a respectable margin for the year as a whole. Buyers and sellers in these markets have good credit ratings and tend to apply for smaller ratios in terms of loan to value, and, therefore, are largely unaffected by the credit crunch itself. Accurate forecasting is always awkward during volatile periods, but the range of conclusions has been particularly complex for anyone monitoring the top end of the housing market. It is negative equity that forces homeowners to sell, and its only when the numbers of forced sellers reach a critical level that a market actually crashes. Personally, I dont feel that this is about to happen, although, admittedly, there will be a lot of pain felt in certain sectors.
Itll be the smaller bonus payments in 2009 that are set to affect prime prices to a greater degree, as activity in the financial markets has a large bearing on the top end of the property ladder. At the time of writing, the prime London and country markets in which companies such as Garrington operate have shown a reasonable degree of resolve. Its the sub-£500,000 mainstream market where the worst effects of the credit crunch have been felt thus far.
The Bank of England has just announced its making £50 billion of bonds available for banks to use to secure mortgage debts, something the money markets have been unwilling to do. This will increase liquidity by allowing the mortgages stuck on lenders books (that no one wanted to buy) to be converted back to a more liquid form, to permit relending again. The average mortgage deal should now start to improve, although it could be a while before we see the results. Meanwhile, the bottom rung of the ladder has effectively been removed, with transaction volumes falling rapidly and chains becoming longer and more fraught.
The main reason for this is because of the withdrawal of 100% mortgages for first-time buyers and the increased cost of borrowing. On the positive side, the rental market is improving in many places, as would-be buyers rent instead as they wait to see what happens. Some opportunistic buyers have also been capitalising on vendor insecurities and distressed sale conditions.
There are risks for all sectors, and, just as everyones revaluing risk in the financial markets, so theyll try to do so in the property markets. The stalemate situation that were seeing at the moment is partly due to sellers asking unrealistically high prices, and, at the same time, buyers are waiting to see if prices will continue to come down. The result is this market gridlock, with sales down an estimated 30% on last year.
As the year progresses, only time will tell whether the present slowdown will become more entrenched, but theres one small relief the Government decided last week to back down on introducing the next phase of the absurd Home Information Packs from June 1, postponing it to the year end.
For more information about Garrington property search, visit www.garrington.co.uk