What will happen to property prices and what will happen to buy to let and property investment after the credit crunch?

What will happen to property prices and what will happen to buy to let and property investment after the credit crunch?
Well, now we know that the Bank of England was now thrown a lifeline to the Northern Rock and has in effect underwritten its deposits.
And much money has been made and lost in the city on trading in the shares of NR as well as Alliance & Leicester, Bradford and Bingley and Paragon - which have all seen huge gyrations in their share prices.
(Expect a wee enquiry into these gyrations at some future point! I can’t help but smell a rat here!)
But back to property!
As you may know, not all lenders raise as much cash from the money markets as Northern Rock did.
Nationwide and Halifax Bank of Scotland only get about a third of cash in this way, though that’s still been enough for lenders like these to raise their standard variable rate by up to 0.2%.
Other banks who have used the credit markets more to raise money are Bradford & Bingley and Alliance & Leicester – and their stock market prices have sea-sawed along with Northern Rock, though not quite as much.
If you took out a Bank of England base rate mortgage tracker for a long term, then you can sit back and relax. Your rate will not go up.
But if you are on a mortgage linked to the standard variable rate one or one where the fixed term expires soon, then be prepared for a hike in your rate right now.
Back in 1988 I took out a loan with a lender that raised funds on the money markets – and not linked to central bank base rates. There then followed a credit crunch and my rate went up.
I learnt my lesson then.
However, lots of landlords have borrowed from lenders who raise their funds in the money markets. I have not seen figures on this, but my guess is that it is a much higher proportion than on standard residential mortgages.
Therefore, rate hikes for landlords could be particularly high and may force some to sell property, opening up an opportunity to others to buy property cheaply. (And if the private rented sector declines, rents will surely rise)
But what does this all stuff mean for house prices?
Well, lenders have already tightened up their lending criteria. They will look much more closely at (and may refuse) to lend on “risky” deals like ex council, new build flats with gifted discounts in oversupplied areas or at loan to values much over 75%.
It could also mean the “no money down deals” may only be available to experienced investors with good track records who are known to a lender.
Now, for a long time I have said there is still an oversupply in some areas.
I forecast falls in house prices in areas that are heavily oversupplied with too much of one kind of property.
Sorry folks, but many cities in the North have too many flats for the current state of their local economies and I predict prices will come down by at least 10% in these towns over the next 12 months.
I’m not alone here. Anne Ashworth, writing in the Times today, cites Liverpool as a good case in point.
However, other areas which are not oversupplied will do well and see prices and rents hold up and indeed go up.
But while all this interest rates stuff is important it is actually a bit of a side show because the real factor that is driving up the UK’s house prices is the expanding population and the lack of housing supply.
Take Northern Ireland as an example. Why did prices surge 50% in 12 months in Ulster recently? True there was a bit of property speculation, and the peace dividend also played a part. But another story that you won’t hear about in the press (well you may in the Daily Mail) was a large migration to Ulster from mainland UK by workers mainly from the new EU.
Now, if the UK economy becomes less attractive to workers from the new EU relative to other places in Europe, then much of the inward migration could fast turn the other way as workers return home or move to other better economies.
I don’t think this could happen anytime soon, but if it did, that really could put the skids on house prices and rental levels.
If you need advice on buying property or renting out property ask me.
I’m David Lawrenson from property investment advice company Letting Focus. I’m the author of “Successful Property Letting – How to Make Money in Buy to Let” the UK’s top selling buy to let book.
I’m a speaker on property, a freelance property writer and I contribute to newspapers and a host of property websites, write a property investment blog and run a property mentoring service
You can read more of my property blog and details of my networking, advice, property advice and mentoring programme and property advice and consulting at my website www.lettingfocus.com.
My next London property networking meeting is in November. Click here for details: Property Seminar Event
Click here to listen to me on BBC Radio 4 Money Box programme: http://www.bbc.co.uk/radio/podcasts/moneybox/ and click on “Download episode for 22nd September”
What’s unique about lettingfocus.com is that we are unbiased and independent, because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2007. This blog is updated at least twice a week

Are Landlords Really Pricing People Out of Buying Property?

I was on Radio 4’s Money Box programme on Saturday being interviewed along with Liz Overend of the pressure group Pricedout who call for action to stop people being priced out of the UK housing market.
I have a bit of sympathy with these guys because there is definitely a degree to which first time buyers are priced out by property investors.
I just disagree with them on the extent to which property investors are responsible for this.
The facts say that only approx 8.5% of English housing stock is in the private rented sector compared to 50% post WW2 and 90% back in the 1920s.
The rented sector in the UK is also very small compared to most other developed countries.
Also, only 10% of mortgages in 2006 were by buy to let investors compared with 28% by first time buyers and buy to let only accounts for 10% of all outstanding mortgages.
At the end of 2006, the percentage of the average first time buyer’s income that went on mortgage interest was only 16.8% which is just slightly above the long run average – stats going back to 1978 are available on the Council of Mortgage Lender’s website www.cml.org.uk for those wishing to check this.
According to research in 2006 by the Alliance & Leicester one quarter of families either lives with parents or rents - and for over a half of these renting is a lifestyle choice.
In other words, they choose to rent even though they could afford to buy. (Another study by Abbey estimated that 6 million people could afford to buy but did not want the commitment)
So, surely, the real issue is for the government – this one and previous Administrations.
It is they who have presided over a huge fall in social housing stock and a lack of house building, all at the same time as a massive increase in population (caused mainly as a result of massive inward net migration.)
The government knows that property investors have saved their necks by providing the finance for housing – finance which they have so miserably failed to provide – and that’s why they are being urged by their own advisers to tread carefully and not make any fiscal changes or any more legal changes that will only end up driving landlords out.
Having said all that, PricedOut and myself do agree about many things. As I have said before in this blog, there is much that could be done to improve the rented sector and the tenants’ lot and there is much I find wrong with some property investors activities. I will be writing more about this here in the blog shortly.
If you need advice on buying property or renting property ask me.
I’m David Lawrenson from property investment mentoring company Letting Focus. I’m the author of “Successful Property Letting – How to Make Money in Buy to Let” the UK’s top selling buy to let book.
I’m a property investment speaker, I contribute to newspapers and a host of property websites, write a property investment blog and run a property mentoring service
You can read more of my property blog and details of my networking, advice, property advice and mentoring programme and property advice and consulting at my website www.lettingfocus.com.
My next London property networking meeting is in November. Click here for details: Property Seminar Event
Click here to listen to me on BBC Radio 4 Money Box programme: http://www.bbc.co.uk/radio/podcasts/moneybox/ and click on “Download episode for 22nd September”
What’s unique about lettingfocus.com is that we are unbiased and independent, because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.Copyright: David Lawrenson 2007. This blog is updated at least twice a week.