House price stumbling block

09 May 2017

Great news for first time buyers, not so good for investors out there who have felt a number of stings from their property portfolios in recent years. I am talking about the stagnating house prices of course and Halifax bank’s recent findings that values have actually fallen in the last three months. What is it that has caused the decline, when investing in property has always been considered to be such a sure thing?

According to Halifax’s research, in the three months to April 2017, prices fell by 0.2%. In the past month alone, they have declined 0.1% and the figures reflect the first consistent quarterly fall since November 2012. The average property price for a house or flat in the UK is now £219,649 and the number of approved mortgages has fallen for two months in a row.

However, we should consider the current economic climate, which is bound to have an impact on lending. Wage growth has slowed and inflation is on the rise, so for many people saving up the cash for a deposit or for a move upwards is getting trickier.

It is not just saving that becomes difficult. The Bank of England’s loan-to-income ratio means that banks and building societies cannot lend more than 4.5 times an individual’s income. If house prices rocket, but wage growth flatlines, it means lenders cannot give a substantial loan to cover the cost of the property. If people can’t get mortgages they can’t buy houses, it’s as simple as that.

Even for property investors, there is pressure to keep rental charges competitive whilst balancing profit margins. As interest rates rise, landlords are covering more of the cost – particularly since the government started to do away with tax relief on property finance. Add to this the further squeezes to property investors, such as the recent stamp duty land tax hikes on second homes, and it is no surprise that landlords could be stalling their property purchase decisions.

There is of course the added aspect of supply. During the recession housebuilding ground to a halt as both demand and cash dried up. Now that the recession has eased its grip, it is not as easy as just getting the engines revved up ready to start building up the housing stock again. Land needs to be acquired and laws are applied to both green and brownfield sites that can make a lengthy process of planning applications.

All of these conditions brought together could contribute to the fall in house prices and if the current climate continues the way it is then house prices could continue to stagnate for quite some time. As the general election looms, whoever comes into power will have a job on their hands to ensure that landlords’ investments are protected, whilst offering affordable ownership opportunities to all.

If you would like some advice relating to a property purchase, whether you are a private or business owner, then our expert real estate lawyers can help. Contact us today to find out more information.

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