Search: Best mortgages on the market
- Check your credit rating: Free report
- Current mortgage best buys
The housing boom is well and truly over, and dinner party talk has switched from how far property prices will rise, to whether we're heading for a full-scale crash.
The latest figures from Nationwide revealed that prices fell by an average of 2.5% in May - this is the biggest monthly fall since December 1992, and the seventh consecutive monthly fall. Prices are 4.4% lower than this time last year.
Martin Ellis, chief economist of Halifax, spoke to Moneysupermarket's Clare Francis about the outlook for the housing market. He, like many other housing analysts, believes we are still on course for a soft landing and that a crash is not on the cards. Having said that, he warns that the housing market is in for a tough couple of years and price falls are expected to continue.
Given the uncertain outlook, many potential buyers will be nervous about transacting now, in case their property is worth less than they paid for it in a year's time. In turn this makes life difficult for sellers, many of whom are struggling to find buyers.
Here are some tips to help those trying to buy or sell a property at the moment:
BUYERS:
Put down as large a deposit as possible
The credit crunch has resulted in lenders becoming more cautious about who they will offer mortgages to. Consequently the number of deals available to those with a deposit of less than 10% has shrunk. However, in a slowing housing market this is no bad thing.When house prices are rising it doesn't matter too much if you have little or no deposit as you will build up an equity stake in your property quickly due to the buoyant market.
However, this obviously doesn't happen in a stagnant market, and it property values fall you could find yourself in negative equity - this is where your property is worth less than the outstanding mortgage. While this is only a problem if you have to sell your home, it is worth trying to put down as much of a deposit as possible to protect yourself from possible price falls.
You will also get a better mortgage rate if you can put down 10% or more. If you have a deposit of 20% or more, First Direct has a two-year fix at 5.59%, with a £1,498 arrangement fee. The best two-year fix for loans up to 90% of the property's value is from Loughborough building society at 5.75%. The fee on this deal is £649.
If you would prefer a variable rate deal, lifetime trackers are looking attractive at the moment. Woolwich's deal at 0.74 percentage points above Bank rate, giving a current pay rate of 5.74%, is available for loans up to 60%. Alternatively, HSBC has a lifetime tracker at 5.99% that is available on loans up to 90%. Neither of these products levy an early redemption charge so you can redeem your loan at any time. Another plus point is that there are no set up costs.
Research, research, research
Don't be overly concerned about a short-term weakness in the housing market - economists believe the fundamentals underpinning the market remain sound. But DO try to get a good price for any property you buy. Inflation may be rising but it is still low on a historical basis. Unemployment and interest rates are also low and we still have a shortage of housing in the UK.
But the current weakness means that you do need to buy carefully. Once you have decided where you want to move to, investigate the local market.
Check estate agents' websites to see how many properties they have on their books and if thereâs a particular property that you are interested in, find out how long it has been on the market for - if it's been up for sale for some time, the vendor may be willing to negotiate on the asking price.
In a slowing market, you need to ensure you don't overpay for a property, so look to see what similar properties have sold for recently. The Land Registry holds this data.
Take note of valuations and surveys
Remember that the person selling the house wants to get the best deal possible for their home - and as such may exaggerate its worth. So have the house independently valued or surveyed and take notice of any comments made. If there are any problems that arise take these issues back to the seller and renegotiate the price accordingly.
Consider buying at an auction
Around 30,000 properties are sold at auction every year and many are sold for up to 40% below their typical value. Consequently, auctions can be a great place to pick up a bargain. However, you must follow some strict rules.
Have the property surveyed beforehand and make an estimate of the total costs of repairs, legal and surveying fees, removals, decorating, mortgage and any other expenses - then work out the highest amount you are prepared to bid. Stick to it during the auction and don't get carried away.
Sellers
Be realistic
In a slowing market, properties that are over-priced won't sell. While you might have got more for your home if you'd been selling this time last year, it's worth bearing in mind that you'd have probably paid more for the property youâd have moved to. So even if your property is valued at less than you were hoping, the loss should be offset by the fact that you'll be buying at a lower price too.
Most people who move, are going up the property ladder so price falls can actually be beneficial - a 10% fall in the value of a £150,000 property is less in monetary terms, than a 10% fall in a £300,000 property.
Get valuations from at least three estate agents and keep an eye on comparable properties in your area to see what they have fetched. If you aren't receiving much interest from potential buyers, it may be that the asking price is too high and you need to drop it.
Make sure the property is in good shape
Buyers will look for any reason to knock the price down and if they are savvy and carry out a survey of your home they are sure to spot problems, so if there are any issues with damp spots, gutters or the roof get them fixed before you put the property up for sale.
Also look to tidy up the front of your home - kerb appeal goes a long way. Just as you would not try to sell a dirty car, spruce up your garden and clear up the driveway to give a good first impression.
Keep your house tidy
You may not think it's that big a deal to have an untidy house - after all, it shows that it's been lived in. However, that's not what property buyers want. In their minds an untidy house can be indicative of larger problems - if you take a carefree attitude to the presentation of the home then you may be slack in other areas too.
According to a survey by Nationwide Building Society, 55% of potential buyers found an untidy home to be a turn off and 75% are put off by household smells. So give the place a good clean and reduce your clutter where possible.
Exchange as soon as possible
Effectively, the exchange of contracts is the 'point of no return' in that once contracts have been exchanged there is little chance of the deal falling through as it will cost the buyer their deposit. So keep in touch with your solicitor or estate agent to ensure everything is proceeding as planned and do all you can to complete the process as soon as possible.
Consider renting
If you can't find a buyer for your property and are reluctant to drop the price further, consider renting your property out. If you do not have much equity in your home, this may not be possible because lenders require larger deposits for buy-to-let mortgages than for residential loans - typically 25%.
Also, the rent you receive will have to cover the mortgage and a bit more - often the rent must equal at least 125% of the mortgage payment, so if your mortgage costs £500 a month you'd need to be getting at least £625 a month in rent.
However, if you think renting your home could be a viable option, the first thing to do is contact your existing lender. It may be willing to accept a change of tenure without you having to remortgage, although you will probably be charged a higher rate of interest than that you are currently paying. This can be useful if you are tied into your current mortgage deal.
If you are not tied in and can remortgage without penalty, you may be able to get a more competitive deal if you switch to a buy-to-let loan.
There are several good buy-to-let mortgages on the market. Principality building society has a two-year tracker at 5.99% with a 2.50% arrangement fee. With this product your rent much be at least 125% of the mortgage payment and loans are available up to 60% of the propertyâs value.
If you need to borrow a higher loan-to-value or want a deal with a lower arrangement fee, Barnsley building society has a three-year discount at 6.19%. The fee is relatively low at £750, although the rental requirement is 125% and a deposit of at least 25% is required.
