THE CREDIT CRUNCH, HOUSE PRICES AND RENTS ADVICE FROM LETTINGFOCUS.COM
What property buyers need to know about the long term impact of the 2008 credit crunch, by David Lawrenson.
Landlord expert David Lawrenson of www.LettingFocus.com says, "Back in 2008 it got very tough in the credit markets. All the main mortgage lenders cut back on the amount they would lend relative to the value of a property and tightened their criteria for new loans. This change hit both residential mortgage lending and loans for buy to let."
RESIDENTIAL MORTGAGE LENDING IS TIGHTER
If you wanted to buy a property either for yourself or to let out and you have not got a decent deposit to put down or you have a bad credit record, things became a bit harder fom 2008.
And still today, in 2014, buy to let mortgages are no longer available for loans to value of over 80%. And the best interest rates tend to be on mortgage loans of less than 70% of the value of the property.
So, it seems the days of cheap mortgage money have disappeared for a while.
In the year 2007 it was thought that about 150,000 people borrowed over 90% of their property’s value, so the clampdown on mortgage loan to value levels really hit the availability of mortgages and hence the demand for houses overall.
IMPACT ON HOUSE PRICES
As we move through 2014, it looks like it will be a year of rising house prices (in most areas), but still with a low rate of new mortgage approvals compared to pre-credit crunch days.
One interesting question is how far the credit squeeze will contine to impact on house prices in the long term because so much of the growth in the financing of the mortgage market was then through the capital markets (rather than via savers deposits).
But figures from the Council of Mortgage lenders show the share of mortgages for letting purposes continued to hold up reasonably well (though at a much reduced volume).
This is no surprise to me because professional landlords who took out mortgage loans years ago will be on very low interest rates indeed right now - and they are increasingly keen to chase the relatively good rental returns caused by so many would-be homebuyers becoming tenants, even if it means they have to pay much higher margins over base rate on any new mortgages they take out.
For house prices, the future will depend on how the rest of the economy bears up and in particular the growth in personal earnings, the rate of unemployment and levels of personal and government debt.
But we should not forget that as long as immigration continues to increase, the resultant population growth from this source alone could keep house prices (and rents) going up.
And the low rate of new house building also points to increases in house prices as a bigger population chases a limited supply of property.
Rent levels are actually holding up very well overall - well, they are outside the “oversupplied me too buy to let ghetto flats” sold to novice landlords by sharp suited salesmen.
Partly, this general increase in rents reflects the problems would-be first time buyers still face in getting mortgages which means they have to rent instead.
For the brave and those with access to credit, I predicted that 2010 and 11 would be the best time to buy for years in many areas because the state of the market means vendors would listen to cheeky offers and buy to let landlords would see rental incomes grow due to the increased pool of tenants. We were proved right.
At LettingFocus we anticipate that strong rental yields will continue to be an ever more important factor in holding property prices up. And it's our view that those forecasters who ignore the growth of the private rented sector in their house price forecasting models will see their predictions of heavy house price falls fail to materialise.
Ask us for independent advice.
ABOUT DAVID LAWRENSON AND LETTINGFOCUS
At LettingFocus.com our main work is our consultancy role in which we help organisations and public bodies with their products and services for the private rented sector. If you are from an organisation go to our home page: LETTING FOCUS HOME PAGE.
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