Negotiating the Booms and Busts in the Housing Market.

Categories: Buying Property Guest Post

The credit crunch, roller coasting recessions and the deeply troubled economies in southern Europe are barely out of the news these days.  As soon as one nation seems to be out of the hot water, another dives in.  For those looking to buy their first home in the UK these are interesting times and not, it seems, in a good way.  Apart from the complexity of the current economic crisis many first time buyers face a difficult task in securing a mortgage; there are plenty of homes available on the market, and there may be more to come if the government has its way, but is now a good time to buy your first home?

The Housing Market Background

Apologies here for dragging up the dark ages but to some extent understanding the current housing market, and its long term prospects, requires a bit of background!  Up until the 1970s nobody owned their own home, with the exception of landed gentry and royalty.  Believe it or not but the UK was a nation of tenants.  Disregarding a whole mass of social upheaval and historical stuff this all began to change slowly during the 70s and then rather more rapidly under Margaret Thatcher.  Instead of having to have a massive deposit, letters signed by your parents, grandparents, doctor and employers banks began to allow people to access mortgages.  With deregulation of the banking industry in the 80s you could get a mortgage quicker than you could say “give me a job.”  The rest is pretty much history and the short version is simply that house prices went mad.  There have been some little tiny glitches on the way in the form of tiny recessions, but until now, nothing like the one we’re in the middle of.  However, as we are all well aware, the credit crunch did for the low (or no) deposit mortgage; this had an effect on house prices but not a big effect.  Today we have the “rock and hard place” situation for first time buyers in which deposits and house prices remain high while mortgages are not so easy to find.

Are we due a Boom?

In theory, at least, after a bust there should be a boom; however, there is some uncertainty amongst housing market experts if the next boom will be particularly loud.  Traditional wisdom suggests that buying a home in this type of climate is no bad thing.  When the market is at rock bottom, then the only way is up, which means longer term profit for you.  The problem with traditional wisdom is that it also includes ideas like the earth being flat, or the moon being made out of cheese.  When it comes to predicting the future trends in the housing market there are a host of opinions to choose from.  Many suggest that there will now be a period of growth; this will be nothing like the mad climbs of the past, but may well see house values increase by ten to fifteen per cent in the next five years.  In the short term (the next couple of years) many analysts expect prices to drop before making this recovery.  This could mean now is not a bad time to buy, but you may need to be prepared to see a “loss” in the short term before being able to sell on at a profit in the longer term.  Some commentators have suggested that the boom in property prices that began in the dark ages of the 1970s is now done with for good and that property will now stabilise for (more or less) good.

A Nation of Tenants?  Again?

So, will we become a nation of tenants again?  Probably not; mortgages are becoming increasingly available, although deposits remain high.  For those determined to buy – and considering the rising cost of renting it still makes sense – the first thing to consider is “what house?”  Buying a new home makes sense in this climate.  For first time buyers there are equity loan schemes offered by the government (see the First Buy scheme) to help with purchasing a new home.  The government is also planning to help the economy by addressing the UK’s housing shortage in the next few years, creating new homes and jobs along the way.  New build houses are also top of the class when it comes to energy efficiency, which makes them far more cost effective to run, while they also have the advantage of being in good order, with low maintenance and the potential to retain their value.  Buying a home in this market is not a bad idea in itself but the emphasis should be on home rather than investment, at least for the foreseeable future.

Choosing what house to buy in a determinedly difficult market has never been easy.  Although traditional wisdom and recent history suggest that boom follows bust there is no agreement amongst experts that we’ve quite seen the end of the bust bit.  Buying new build homes as a longer term commitment (and rent saving strategy) may be the most realistic approach for first time buyers.

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