THE CREDIT CRUNCH, HOUSE PRICES AND RENTS – ADVICE FROM LETTINGFOCUS.COM
What property buyers need to know about the credit crunch by David Lawrenson. Ask us for help with your buy to let and property investments.
Landlord expert David Lawrenson of www.LettingFocus.com says, "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 property and tightened their criteria for new loans. This change hit both residential mortgage lending and loans for buy to let."
Residential mortgage lending has got tighter
If you want 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 will have become a lot harder for you.
Buy to let mortgages are no longer available for loans to value of 85%. And the best interest rates tend to be on mortgage loans of less than 75% 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.
And what of house prices?
As we near the start of 2010, house prices are down on 18 months ago in many parts and mortgage approvals are at very low levels - but as the new year dawns both activity and prices seem to be picking up a bit.
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 through the capital markets (rather than via savers deposits).
Buy to let mortgage picture
A survey by Savills in 2008 said that about a quarter of landlords would be unable to make further purchases because of this tightening in mortgage lenders' credit criteria.
And yet figures from the Council of Mortgage lenders showed the share of mortgages for letting purposes continues to hold up reasonably well.
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.
Future predictions
For house prices, much 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 - well, they are outside the “oversupplied me too buy to let ghetto flats” sold to novice landlords by sharp suited salesmen.
Partly, this increase in rents reflects the problems would be first time buyers face in getting mortgages which means they have to rent instead.
For the brave and those with access to credit, I predicted that 2009 and 2010 will be the best time to buy for years because the state of the current market means vendors will listen to cheeky offers and buy to let landlords will see rental incomes grow due to the increased pool of tenants.
The start of 2010 has seen house prices move up fast.
About David Lawrenson and Lettingfocus.com
If you need more advice on the credit crunch or the outlook for house prices please ask me.
I’m David Lawrenson from property investment mentors www.LettingFocus.com.
I am the author of the UK's top selling property book, "Successful Property Letting - How to Make Money in Buy to Let" and a respected independent property expert.
We have no links to real estate companies.
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