Benefit or Bubble?
Watching the steady growth and growing profits in property
Looking back to spring 2009 and my article “Welcoming the Green Shoots in the Residential Property Market “, the housing market in York has kept up a steady recovery. Due in large part to the active and buoyant ‘buy to let’ market and increase in the availability of good ‘buy to let’ mortgage products, can we say the same for the rest of the region and does the Government’s current home buyers’ initiative mean the threat of another unwelcome property price ‘bubble’?
Having been privileged to live and work in York and North Yorkshire for the last 37 years, I always encourage others to join me; however, it comes at a price. The average house value in York currently stands at £179,500 compared to £168,000 in North Yorkshire, £107,500 in West Yorkshire and £101,300 in South Yorkshire. Since 2007 buyers have also been required to find at least a 25% deposit, as most lenders would not provide loans of more than 75% of the value of the property at realistic interest rates, if at all.
This lack of affordable mortgage finance, debilitating economic downturn and subsequent lack of confidence in the employment sector significantly reduced residential property sales and, as we saw, property prices took a dip. Home ownership still remains the preferred option for many people, yet, because of the large deposits now required of first time buyers and limiting lending to 75% of the purchase price for existing house owners who want to move up the housing ladder, prices remain low and the market sluggish.
For a sustained recovery of the housing market and house prices to return to the level of 2007, there needs to be an increase in the number of transactions.
In an effort to kick-start a faster pace of buying and selling the Government has introduced two schemes with the aim of helping buyers.
Help to Buy Equity Loan – is for buyers of new build properties up to a value of £600,000. The Government will provide an equity loan of up to 20% of the purchase price (interest free for 5 years) and a mortgage lender will provide a 75% mortgage loan and the buyer provides a minimum 5% deposit. When the property is sold the equity loan is repaid as a percentage of the sale price. This has already resulted in an increase of activity in the sale of new build properties, but a word to the wise: it is important that you understand your current and future obligations with regard to the loan.
Help to Buy Mortgage Guarantee – is a scheme whereby the Government will guarantee the mortgage for up to 20% of the purchase price, which will give the lenders confidence to provide higher percentage loan to value mortgages to creditworthy borrowers with modest deposits. Be aware: you will still need to pass the lenders stringent credit checks and be able to afford the mortgage payments on the higher loan.
The big question must be will our slowly returning market confidence and increasing activity to date, combined with the anticipated increase due to the Government schemes, create a housing price bubble? Certainly not yet and ultimately only time will tell; however, any price bubble in the Yorkshire region will take a long time to inflate, as we are still at least 10% down on the value of properties at the height of the market in 2007. If, therefore, you are wondering whether to get your foot on the property ladder, I would encourage you to do so without delay!