Availability of Mortgage Finance Holds Up Property Value Bounce Back

After a two year period of stagnation with property sale transactions down by as much as 50% at times, there is currently a pent up demand amongst property purchasers. Additionally many potential first time purchasers have had their ambitions suppressed and now believe that residential property has become extremely good value thanks to approximately 25% value falls. And finally, government forecasts of the need for an extra 120,000 houses a year to be built have not gone away. All these factors indicate an imminent resurgence in the property market and indicate that a timely return to 2007 transaction numbers of around 1 million a year should be possible even in the short term.

What presently seems to be holding back this improvement is the availability of mortgage finance, particularly for first time purchasers. Mortgage approvals are on the increase month on month but remain at levels notably below the mid 2007 levels. This appears to be more to do with supply rather than demand as the banks continue to increase their lending to property buyers with a degree of caution. The banks must lend to make profits and it is profit which will best repair their balance sheets, but it is vital that they lend carefully, it is widely held that their carelessness in property lending was a principal cause of the financial crisis in the first place. A Quick Property Sale is still possible if the property owner prices the property sensibly and the purchaser has funds in place to complete the transaction.

Income multiples and lender assessment and credit scoring criteria look like being set to return to an earlier time of prudence and the availability of non status mortgages or impaired credit mortgages will be greatly restricted. Financial Institutions will carefully increase their lending in the property market but it will be only those with demonstrable affordability who will benefit from such finance. This crisis has recently created a demand for “Sell House Fast” Companies who buy houses extremely quickly indeed, but at below market value, using their own funds.

The impact of all this will be a gradual increase in property transaction numbers over the coming months. But borrowers will be restricted on affordability by more prudent income multiples and will have to continue to bargain hard for the property they want. Sellers will have to accept, especially if they want to Sell Home Fast, the reality that their property is now worth 25% less than two years ago, but they will gain by getting their next property at a similar discount.

So the merry go round of property transactions will continue and the mortgage market will surely prove to be the main inhibitor on property prices in the coming months and years. In time to come the past two years of tumbling property prices will become to be seen as a necessary market correction brought about by a return to more careful lending values. In the meantime a steady rise in property prices can now confidently be predicted.