There has been much said over the last 12 months about property prices falling. Just this week, Nationwide have announced a 1.9% drop in August 2008 alone. As if that wasn’t daunting enough, they also went on to say that for the first time since the early nineties, the annual drop from August 2007 to August 2008 has exceeded 10%.
With the average house across the country now down to just over £164,000, some first time buyers and prospective purchaser waiting in rented property for the market to fall, assume this is all good news. Sadly not. With money lending restrictions tightened up from the same period 12 months ago, unless first time buyers are able to put say 20% deposit down, very few lending institutions are able to offer products that are affordable to these buyers. Many of the banks are in need of money themselves, so are only willing to lend on a very selective basis and at increasingly expensive rates. The evidence can be seen in the level of mortgage approvals.
If the downturn is looking more severe than the nineties, then the availability of credit is probably the cause and that’s a global problem. The media tends to focus on house prices, but volumes are the key driver of profitability for house builders and those volumes have fallen sharply but the lettings market continues to flourish.
Both short and long term Assured Shorthold Tenancies are on the increase, highlighting that some consider the sales crisis a medium term problem – or even an opportunity. The rental market boomed as housing sales in July diminished, says the RICS Lettings Survey published Tuesday 19 August 2008. New letting instructions (an indicator of supply) to let increased at the fastest pace in the survey’s history as many would-be sellers found that becoming a landlord is a better option than selling in the current climate.
RICS spokesperson James Scott-Lee commented: “The lettings market is booming with many vendors opting to rent their property while sales in the housing market continue to dry up. Many are willing to 'hold' and await the return of capital appreciation.
Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns. Established investors have been reaping the benefits of the housing downturn for some time and will continue to do so in the short term. However, the increasing supply could have an impact on rental growth as tenant options increase”.
As a closing note, the sales market should not be ignored. We have recently agreed a sale on an equestrian property in Worcestershire for £750,000 and been instructed to auction a cottage in Dumbleton, Worcestershire in October – interest for which is already excessive.
Whilst there is no doubting property prices are falling for certain properties in certain regions, it’s all relative. What you may be losing when selling your home - may be recovered when you buy the next property. Being in a cash position in the current climate affords significant buying power.
