Is It A Good Time For Property Investment

Is Now A Good Time To Invest In Property

In todays economic conditions the word investment is not used as freely as it was a year ago. Combine this with the word property or house and its even fewer.

So why does property investment seem such as scary proportion at this point in time.

All investment opportunities in all industries have ideal conditions. When prices are low - this is the time buy.

The problem with the property and housing market is that the residential home buyer is obviously connected to this market.

Property sales involving ordinary home buyers in the UK has fallen by 53% in the past year, according to the latest government figures.

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In September nearly 60,000 homes were sold, over twice as many were sold the same month last year.

That was also a 62% fall from the recent peak in sales, of 154,000, seen in December 2006.

Currently the credit crunch has plunged the housing market into its sharpest slowdown for many years.

Housing Market Decline

Despite a recent cut in interest rates, attempts by the government to assist the banking system, and a reduction in the burden of stamp duty, there is no sign yet of the property market coming out of its worrying decline.

Providers of mortgage products such as the Halifax and Nationwide have reported that prices are still in decline around a tenth of what they were this time last last year.

A recent survey by the Royal Institution of Chartered Surveyors (RICS) found that estate agents were having problems trying to sell a property a week.

In addition, the best leading indicator of future activity - the number of new mortgages approved for house purchase but not yet lent - is down by 70% on a year ago. This indicates that prices still have not reached a low point.

Lack Of Money

The key factor in the sales slump has been the lack of funds in the past year available to banks and building societies to lend to borrowers, especially first-time buyers.

With house prices falling, lenders have been demanding that borrowers put down deposits that are much larger than normal, to protect themselves if someone becomes unemployed and the home is subsequently repossessed and sold at auction.

At the start of the year, mortgages worth 100% or even more of a property’s value disappeared. Now even the traditional 95% mortgage is in danger of disappearing.

Many lenders now ask borrowers to put down at least 10% of the purchase price of a new home. The most favourable deals, at the lowest interest rates, are generally available only to those who can put down 25%, or sometimes even 40%, of their purchase price.

“There are some signals that housing market activity could be close to hitting a floor but there is a danger that a sharp rise in unemployment could precipitate a further round of fear on the part of buyers,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).

Is Now A good Time To Invest In the Housing Market

Despite the unhealthy conditions if property were any other commodity - the time for investing is fast approaching.

Once the market is on the floor the only way is inevitably up.

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Are House Prices Still Falling

UK Housing Market Still In Decline

The UK housing market and house prices suffered further decline with 1.3% fall in September, according to the Halifax.

Halifax said the decline meant the annual fall was now around  12.5%, with the average cost of residential property the UK now at £172,108.

Halifax, together with Nationwide claims that the rate of decline was starting to bottom out when looking at quarterly comparison figures.

But continued to say that the state of the property market would remain “challenging” as mortgage availability was still far from the heights of a few years ago.

The yearly rate is calculated using a comparison of the past quarter in comparison with the same three months back in 2007, aiming to cut out any short-term volatility.

When comparing prices in just September with the same month the previous year, the drop in prices reaches 13.3%, the biggest recorded by the Halifax.

House prices have fallen every month since the beginning of 2007.

The average price of a UK home is close to that seen in January 2006.

“The ongoing pressures on householders’ income, combined with the reduction in the availability of mortgage finance mean that market conditions will remain challenging,” said Martin Ellis, chief economist at the Halifax.

But he welcomed the move by the Bank of England’s Monetary Policy Committee to cut interest rates by half a percentage point to 4.5% on Wednesday.

“Lower interest rates will help mortgage borrowers faced with increasing pressures on their finances and provide a valuable support to the housing market,” Mr Ellis said.

Could House Prices Stabalise Soon

Property Prices declined by 5.2% in the third quarter of this year, close to the 5.1% fall of the previous three months. This was evidence that the pace of decline was stabilising, Mr Ellis said.

But with food and fuel prices having risen over the last year, and wages failing to keep up with the increase, households had less discretionary income.

“The resulting pinch on incomes, combined with the high level of average house prices ratio to earnings, has made it hard for potential house buyers to gain a foothold on the first rung of the property ladder.” he continued.

Other analysts were in agreement that the rate of decline could stabilise soon and start to bottom out.

The anual falls in house prices should hit a maximum of 15% next month and fall no further, according to Ray Boulger, of mortgage brokers John Charcol.

Prices were increasing up until October 2007, before the effect of the credit crunch hit. As a result the year-on-year comparisons have been striking in recent months, he said. He said the Halifax figures were “not surprising”.

But Howard Archer, chief UK and European economist at Global Insight, said he expected house prices to decline still further.

“Faster rising unemployment, heightened concerns over the economic outlook and widespread expectations that house prices will continue to fall markedly seem set to depress housing market activity and prices for some considerable time to come,” he said.

Despite hopes that Wednesday’s rate cut will spur lending and boost the housing market, banks have been slow to pass on previous rate cuts to new and existing borrowers, as they continue to scale back lending.

The latest Bank of England figures show the average mortgage rate paid by new borrowers rose from 5.88% in August 2007 to 6.1% in August 2008 despite a three-quarters of a percentage drop in the Bank rate over the same period.

The average mortgage rate for those with existing mortgages has dropped from 5.91% in August 2007 to 5.83% to August 2008, although it has fluctuated during the year.

These cuts made by the Bank of England’s Monetary Policy Committee have benefited existing borrowers, mainly those on tracker mortgages and tracker rates.

Earlier this month, the Royal Institution of Chartered Surveyors reported that completed property sales in August were 47% lower than in the same month a year ago.

Source bbc.co.uk

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