Short Sales Insider Guide – Big Profits In A Chaotic Housing Market.

According to the Land Registry, house prices in January were down by 15.1% since the same time last year.  Every region in England and Wales has seen property prices fall by at least 12% in the last year.  Buyers are waiting until they see that the market has bottomed out, and with the waiting, house prices are expected to continue falling for the next few months.  There are however signs that the freefall may be easing and soon may have reached the bottom. 

For example, with prices in prime spots in London being down up to 20% compared to the March 2008 peak coupled with the weak pound, buyers from overseas are seeking to pick up a bargain.  The window of a strong euro against the pound and the security of bricks and mortar in prime location adds further appeal.  Although Londoners themselves may object to property being snapped up it will be one small prop to help stabilise house prices.  Importantly, according to TimesOnline, cash sales, which are not recorded in the statistics produced by Nationwide or by Halifax, now account for a whopping 40 per cent of transactions as buyers turn to property as a more lucrative alternative to low-paying deposit accounts.

Mortgage availability is beginning to see change.  In January, mortgage approvals held steady at 31,000.  Although this is half of what it was last year, they have averaged 31,000 for the last six months.  Mortgage lenders typically want a deposit of 20% of the purchase price which is a hefty sum to secure.  Saving for a deposit takes time and in this time house prices fall.  However, Northern Rock will soon begin to offer some 90% mortgages.  The Bank of England is expected to lower base rates again and is also likely to increase the amount of money in the British economy, both of which will improve the supply of funds for mortgages.

The current low interest rates, although will not lead to a sudden housing market revival, do make loans more affordable which will be another positive support for both new and existing borrowers.  According to Halifax, mortgage payments have fallen from 31% of gross earnings for a new borrower in the first half of 2008 to an estimated 21% in January 2009.  The house price to average earnings ratio has decreased to an estimated 4.48 in December 2008 from a peak of 5.84 in July 2007; a fall of 23%. The long-term average is 4.0.  Potential buyers are noticing the opportunity: according to the Royal Institution for Chartered Surveyors enquiries from new buyers rose in January 2009 for the third successive month.  

Of course, there continues to be pressure on incomes with rising unemployment and the negative impact of the turbulent financial markets on the availability of mortgage finance, but the update is that there are signs that the freefall on house prices and drought of mortgage availability is easing.  As such, it could be wise to buy before house prices reach bottom as with low prices, low interest rates and increased mortgage availability an eventual recovering economy could bring house prices to rebound sharply.

The credit crunch has emphasised the importance of the first time buyer in the market place.   The first time buyers’ absence from property transaction chains is part of the “mix” which is preventing sellers from moving on and the market is consequently stagnating.

The road to recovery for the property market will require significant efforts throughout the property industry and also a change in Government policy to revive the first time buyers’ ability to get on the property ladder. Currently the lending institutions and Government policy have done little to alleviate the situation. There are measures that could be taken e.g. the raising of the Stamp Duty threshold even further and the Bank of England’s policy on interest rates these will be watched closely over the next few months.

The current re-adjustment of property prices means that buying a property could now become more affordable as property prices are returning to a more realistic level. The increase in the costs of living however means that it is harder to save the deposit that is now needed to purchase in the majority of cases. Instantaneous property ownership for anyone with an income is now a thing of the past.

First time buyers should be given a climate in which they can decide whether to take the plunge and take advantage of the current buyers market. Advice must be readily available from Mortgage/Financial Advisers, Estate Agents and Solicitors alike to make the first time buying process more attractive.

Buyers must be made aware that more preparation will be needed by them and the decision to buy will have to be carefully calculated. It is not just a matter of borrowing it is coping with the repayments that has to be properly considered. To give a simple example if you were paying a mortgage at 4% interest then an increase to 5% would be stated on TV as an increase in the mortgage rate of 1%. If you are the mortgage payer then the amount you actually have to pay would have increased by 25%. The government need to facilitate a period of stability in the mortgage rates to limit the number of repossessions and to give confidence to us all.

The lack of variety of mortgage products may be a problem, however, by taking expert advice a first time buyer can assess the amount that will comfortably be loaned by a lending institution and how much deposit will be required before they consider buying. Borrowing from parents or family will be one option to raise the shortfall needed to purchase. Parents or family can all be considered by lending institutions as guarantors but must remember the risk to themselves. Buying with a partner or friend shares the burden of mortgage repayments as long as the correct legal advice is sought, these are valid options to get on the property ladder.

The Government is already committed to produce affordable housing and shared equity and shared ownership schemes can be considered by those on a low income. Over the last 5 to 10 years it is clear that property became regarded as an instant money making short term investment. In the current economic climate perceptions do need to change and first time buyers need to be reminded of the longer term traditional rewards of private home ownership. Those in rental accommodation should consider the long term ideal that instead of lining the pockets of a Landlord they could be paying into a mortgage for their future. More emphasis should be placed primarily on property being purchased to make a home and be considered secondarily as an investment for the long term future.

About 20 years ago the UK housing market was booming, prices were rising much faster than inflation as people clamoured to invest in property and move from rental to home ownership. It appeared that buying property was akin to printing money, you just couldn’t lose, or could you? As prices continued to increase the inexorable happened, properties became unaffordable as bank interest rates continued to rise. People had borrowed up to 5 times (and more) their annual income; they could no longer afford mortgage repayments as bank interest rates almost doubled in 2 years. The result? A huge increase in mortgage arrears and property repossessions.

The big question is will history repeat itself? A short answer to this question is very likely, unless the market changes its habits. In 2003 the UK bank base rates reached a low point of 3.5%; at the start of 2007 the base rate was 5.25%, this represents a 50% increase in less than 4 years. Combined with increasing bank base rates people have also been borrowing on ever high multiples of their incomes, in some cases up to 7 times annual income. These higher borrowings make people even more vulnerable to further increases in bank base rates, so it doesn’t take much thinking to realise that the UK property market is at the very least stretched, more likely it is stretched to a point where it could break.

Looking back on history 20 years ago then the UK will reach a comparable situation when bank base rates reach 6.5% to 7%. Already there are projections that base rates will increase to over 6% in 2008, if this happens there will be a huge increase in mortgage arrears, for many it will be too late to stop repossession of their homes. This is a very dire outlook, the best advice anyone can offer is do not over extend yourself when buying a property, ask the question “can I afford my mortgage if bank base rates increase to over 6%”, if the answer is no, then don’t buy.

Whilst the effects of the global credit crunch plays havoc with the UK housing market, many people are struggling to find suitable mortgages. The problem is the same for a whole range of people from first time buyers to those who are looking to remortgage.

Many would think that first time buyers might welcome the effects that the credit crunch is having on the housing market as it is bringing the prices down after years of steady rises. However whilst some properties are becoming more affordable, finding a mortgage that is affordable is more difficult. First time buyers have less choice nowadays when it comes to mortgage providers due to many lenders withdrawing products from the market. The products that are still available often have high rates of interests as well as steep arrangement fees. In addition they are now only available for smaller amounts, meaning that some areas will still be out of reach for first time buyers.

On the other hand, those who already have mortgages are also suffering. Many people who secured themselves cheap two year rates before the credit crunch are now finding that they are due to expire and similar deals are no longer available. In addition thousands of homeowners have found themselves in negative equity after the price of homes has dropped below what they originally paid for the property. Statistics for the UK show that there was a 2.5 percent decrease in house prices during May which is the largest drop in one month since records began in 1991.  Since last October the average drop in house prices has reached £12,500.  Predictions for the future look bleak with experts stating that they believe house prises in the UK will drop by an average of twenty percent over the next two years.  If this is the case, then it is predicted that around two million homeowners could end up with negative equity.

Negative equity is not necessarily a bad thing if people are planning on staying in their current homes for considerable time; as trends in the housing market have shown that prices typically do recover over time. However for those people who are looking to move or need to remortgage during this time then things become a little more difficult.  It is estimated that over 1.5 million people will need to remortgage this year and finding a good deal is a tricky business. Those who need to remortgage for more than their house is currently worth will find that the deals will be even less competitive and in some cases they will have no other option but to remain with their current lenders variable rate which is often a lot higher. 

Overall predictions for the housing market over the next two years are looking bleak which is encouraging more people to stay put in order to ride it out. There are also fewer buyers as consumer confidence in the market plummets. Those who do need to sell will find they have to lower their prices quite substantially to entice the buyers in; whilst those who do want to stay will find it harder to find competitive mortgage deals. We will just have to wait to see what the future holds.

New data from the Council of Mortgage Lenders shows further signs of stabilisation in the mortgage market, but volumes are still weak on a historic basis and  the latest RICS UK housing market survey shows the market constrained by lack of supply.

Lending for house purchase and remortgaging both increased in June, albeit from very low levels. There were 45,000 house purchase loans, worth £5.9 billion, up 23% from 36,500 loans in May. However, this is less than half the average number of loans in June over the last seven years. A total of 116,700 house purchase loans were advanced in the second quarter, a 50% increase from the preceding three months but down 22% from the second quarter of 2008. The number of loans for remortgage increased by 13% from May to 34,000 loans in June. But low interest rates have dampened demand for remortgaging in the second quarter with 96,000 remortgage loans, a 21% fall from 122,000 in the previous quarter.

Fixed rate deals have increased in take-up throughout the second quarter and by June made up 78% of new lending, the largest share since June 2007. This appears to be supply-driven, reflecting the more widespread availability of fixed-rate products in the marketplace. There were 17,200 loans to first-time buyers worth £1.9 billion, up from 13,700 loans in May but below the 18,400 in June last year. There were 27,800 loans to home movers worth £4 billion, up from 22,700 in May but down from 29,500 in June last year.

Affordability measures for homebuyers were broadly static in June, but the tightening in criteria since the onset of the credit crunch appears to have ended. The typical first-time buyer had a 25% deposit, unchanged since February. Home movers typically borrowed 69% of the property’s value, unchanged from April. Income multiples have also started to increase modestly, with the typical first-time buyer borrowing 3.08 times their income, compared to 3.04 in May, and home movers typically borrowing 2.76, compared with 2.74 in May.

CML economist Paul Samter said: “Low interest rates and realistic selling prices have helped generate a welcome increase in transactions. But there is some way to go before we reach normal levels of activity. There are tentative signs that lending criteria are easing, but remortgaging demand is likely to remain subdued whilst interest rates stay at current levels.” According to RICS over  the past year, unsold properties on surveyors books have dropped by almost 30% but in July average level of inventory rose to 60 which compares with 57 last month and 69 as recently as April as more seller started to come forward.

Commenting, RICS spokesperson Jeremy Leaf said: “Although demand for property is continuing to rebound, it still remains low from a historical perspective. Crucially it is the lack of supply that is helping to underpin prices at the present time. “Significantly, the more positive news on prices – at least in some parts of the country – may prompt more properties to come on to the market. If mortgage availability remains insufficient to meet the increase in buyer demand, then it is possible that prices may slip back again especially if unemployment continues to rise and mortgage rates increase . “The pattern emerging in the regions is very interesting, with more Chartered Surveyors in London, the South-East and the South West reporting rising prices, whilst those in the North are clearly experiencing a very different marketplace.”

For both the property market and the general population, the current credit crunch is having a significant effect on both the housing market and the livelihood of citizens. Many residents, as well as foreigners, have made good investments on property and can now be considered as having increased their wealth, while those who have make bad decisions and have not timed the market will have to face financial difficulties regarding the cyclical situation within the current property market.
With UK property prices mirroring the fall in the US market, and the continuing effects of the global credit crunch, the debt burden for many consumers is overwhelming, and many are looking to dispose of their properties in an already distressed market. Unfortunately, the bad news for the UK housing market will keep coming, and is unlikely to change for some time to come. Fortunately, there are certain opportunities created in this type of market that can be taken advantage of, without having huge amounts of cash at your disposal. For many people facing the dire consequences of home repos, they really don’t have many alternatives in terms of disposing their properties. However, there are options available to these consumers, and many savvy investors are taking advantage of such type of distressed sales. The concept is the sale and rentback of the property, where the current owner sells his property to the investor, with the proviso that it will be immediately rented by the previous owner, namely the concept of rentback. Sale and rentback can be a very effective strategy for such consumers to not lose the house over their head, yet remain in the property. The concept is simple: the current owner can sell and the investors can rentback to the previous owner on an Assured Shorthold Tenancy, whilst the investor also enjoys a lower property purchase price compared to the market value. The pros for the previous owner include not tarnishing their credit record, as well as negating the need to move house. However, you must keep in mind that sometimes the tenant is only provided with a limited tenure tenancy, so you have to be ready if the landlord only provides you two months notice when they want to seek possession of the property.
Facing repossession or eviction as well as facing mortgage payments or other outstanding debt that need to be paid as soon as possible are the main reason for people taking this option. The previous homeowners will be able to survive the critical situation and will also get a bonus benefit, their neighbour or friends will not realise the crisis, and they continue to live in the same house. As we all know, financial problems can be quite problematic and embarrassing and it is the savvy investor that can take advantage of this current market turmoil to make huge profits when the cycle turns. Furthermore, what many people are not aware of is that these properties can actually be purchased with no-money down. Sites such as WealthPillar.com have a wealth of knowledge regarding this option, and can also offer the solution for many seeking to become successful property owners. With such sites, you will learn about the principles of successful property investing and the latest investment models which virtually guarantee 100% property occupancy and no ‘void’ months. If you have ever wondered how to make motivated sellers contact you, this website will also tell you the three proven systems and processes and help you generate 80% of your property leads.
In real estate investing, the crucial thing in determining if your investment will be successful or not is by identifying early if the property you are assessing has the potential for profit even before you set your foot through the door. Real estate investing has always been the most effective way at creating wealth, and finding no money down purchases from rentback customers can provide the lucrative opportunity you have been waiting for to take advantage of the current UK housing market