On the whole, the first half of the year has been another successful period for the mortgage industry.
As we move into August lenders have begun to issue their results for the first six months of 2003 and have largely been reporting substantial rises in pre-tax profits. This positive news tallies with the property trends we have been seeing to date. While house price rises have been slowing, there is no sign of the freefall that many suspected might happen. The move has been to more sustainable levels. Prices are still up by more than 19% on last year, but it looks like they will continue to ease as the year continues, giving the market time to draw breath before it moves forward.
But while the long predicted slump in the buy-to-let market has not happened either, its continued strength should actually serve as a note of caution to lenders and brokers alike.
The continued growth in house prices is still a strong lure to alternative investors, but this positive outlook needs to be tempered by the fact the market is being swelled by potential first-time buyers who cannot afford to buy, which is reducing the numbers coming in on the ‘bottom rung’. This suggests the churn in remortgaging is finite and rates will have to rise eventually, as lenders cannot afford to keep slashing their rates in line with the cuts in base rate. And the fact that even those on the property ladder at the moment may have to stretch themselves in order to achieve their housing aspirations is another worry, as it will inevitably make the market more susceptible to shocks elsewhere.
This may sound overly pessimistic, but borrowers must be advised to stick well within their means and not risk putting their future stability at risk for the sake of what may turn out to be short term gains.
The recent completion of the Barker Review, which is examining the issues surrounding housing supply, is expected to report that a severe shortage of housing is contributing to the volatility of the market, and only a comprehensive house-building plan will bring stability to the spiralling prices.
The publicity surrounding the Review comes at a time when the CML has reported that Wales needs 33,000 new houses to satisfy demand as borrowers there are shunning existing stock and are seeking out new homes, with many willing to pay up to 50% more for such a property. While a certain proportion of the existing housing stock in Wales is in need of renovation, the fact that there is such a disparity in prices should serve as a clear warning that the housing market is still a bubble that could burst.
Ben Marquand, Editor