Availability of Mortgage Finance Restricts House Value Recovery
Saturday, July 4th, 2009 Subscribe To Our Feed
After a 2 year period of stagnation with residential property sale completions down by as much as 50% at times, there is currently a built up demand amongst residential property buyers. What’s more many potential first time buyers have had their ambitions thwarted and now recognise that property has become extremely good value due to approximately 25% value drops. Lastly, government forecasts of the need for an additional 120,000 residential properties per annum to be constructed have not disappeared. All these factors seem to suggest an imminent resurgence in the residential property market and suggest that an early return to 2007 transaction numbers of approximately a million per annum could be possible even in the short term.
What currently seems to be restricting this amelioration is the availability of mortgage finance, particularly for first time buyers. Mortgage approvals are on the increase month on month but are still at levels appreciably below the mid 2007 levels. This appears to be more to do with supply rather than demand as the banks continue to open up their lending to residential property buyers with some caution. The banks must lend to be profitable 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 imprudence in residential property lending was a principal cause of the financial crisis in the first place. A Quick Home Sale is still possible if the house owner prices the residential property sensibly and the buyer has the money in place to complete the transaction.
Income multiples and lender assessment and credit scoring criteria seem to be set to return to an earlier time of caution and the availability of non status loans or impaired credit loans will be very much restricted. Financial Institutions will warily increase their lending in the residential property market but it will be only people with real affordability who will benefit from such finance. This situation has recently created a demand for “Sell House Fast” Companies who purchase residential properties extremely rapidly indeed, but at below market value, using their own funds.
The impact of all this will be a measured increase in residential property transaction numbers over the coming months. However purchasers will be restricted on affordability by more prudent income multiples and will have to continue to bargain hard for the residential property they desire. Sellers will have to accept, especially if they want to Sell Home Fast, the reality that their residential property is now worth 25% less than 2 years ago, but they will gain by getting their next residential property at a similar discount.
So the merry go round of residential property transactions will carry on and the mortgage market will for sure prove to be the main inhibitor on residential property prices in the coming months and years. In time to come the past 2 years of falling residential property prices will become to be seen as a necessary market correction brought about by a return to more prudent lending standards. In the meantime a slow rise in residential property prices can now confidently be predicted.
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