While the signs are that the UK housing market is under pressure, house prices have not yet shown the marked fall which many experts had been predicting, so what can we expect in the short to medium term?

The situation we are seeing in the UK property market is very much similar to that in the early days of the credit crunch, whereby many so called experts are breathing a sigh of relief that we have not seen a collapse. However, as we all know now the credit crunch has come back to haunt the worldwide economy with a substantial slowdown in worldwide industry expected in the short to medium term. The situation with the UK housing market will be similar because of a number of factors which include :-

Lack Of Funding

Many banks and other financial institutions have been forced to curtail the agreement of new mortgages after experiencing funding difficulties in the wake of the credit crunch. There is no short term solution to the problem because central to the problem is the fall in the value of core investments held by many institutions, which historically they had used as collateral for extended finance.

Economic Slowdown

As corporate UK continues to struggle from the slowdown in the worldwide economy, more and more companies will be looking to reduce their costs as profit expectations are slashed for the short to medium term. At some stage cost savings will mean job cuts which will mean less money in the pocket of consumers, which will again filter through into the economy and depress corporate profits yet further.

Inflation

While the Bank of England has full control over the future direction of bank interest rates there is great concern over the recent rise in inflation. The government’s upper band will be breached over the next 12 months with many expecting inflation to rise to more than 3%, which seriously undermines the ability of the Bank of England to slash interest rates as they have done in the US.

Consumer Confidence

Even though historically the UK consumer has been fairly upbeat we are starting to see signs of concern as the taxation policy of the current UK government starts to bite and people are actually beginning to feel the pinch. The impact of higher petrol prices has also had a knock on the affect to the UK economy where extra transport costs have been passed onto the consumer through the higher price of goods, eating away at the income of the UK consumer even more.

Unfortunately for the UK consumer there is no quick fix solution to the problems which we are experiencing now and set to encounter in the short to medium term because a sharp reduction in interest rates has the potential to push inflation higher, thereby affecting the long term performance of the economy. This lack of consumer financial strength will see less demand for houses and more home owners experiencing financial difficulties. Cut price sales will appear in time which will further reduce the strength of the overall market with the potential to see a serious sell off in due course. Buyers who have or can arrange funding are most certainly in a position of great strength, but probably in no rush to buy!

Chancellor of the Exchequer Alistair Darling while delivering his maiden budget speech stated that the Government would consult with industry on fixed rate mortgages for 10 years, 20 years or 25 years period. However, more details are required on the plans, after his last month commitment of grading the mortgage system by giving ‘gold standard’ kite mark to least risky loans. He stated that the support of the Government for shared equity schemes have helped 95,000 homeowners across the country, to acquire their property, especially after Labour took office. He also announced that the stamp duty will be scrapped to 80 percent of the equity value and 8 billion stg would be spent for social housing over the next three years.

The chancellor said that these measures would help to boost the secondary markets which were now facing a difficult situation and also would keep mortgages stable and low. He also promised more support through the cutback of stamp duty on shared equity schemes for the first-time home buyers and key workers. He also added that in the existing weak market, this measure is expected to diminish tax revenues and encourage house buying activity.

Further, land remediation relief has been extended in the Budget to help the brownfield land development. He stated that for supporting existing land redevelopment, new measures are adopted to deliver 200,000 homes by 2016 on the additional land owned by public sector and this will result in increase of supply in housing without using the green field sites. Conversely, the market observers stated that with the identification of more public land sites, the Government’s plan cannot be expanded further as the land availability becomes limited.

On the other hand, the Council of Mortgage Lenders (CML) said that the budget measures may be beneficial for the mortgage and housing market in the long term; however this will not bring relief to the immediate problems faced by the people. But, CML welcomed the move by the Government to help the secondary market and non-commitment of ‘gold standard’ kitemark for mortgage backed securities and covered bonds.

Council of Mortgage Lenders condemned that there is no fixed timescale on providing relief measures and hence this will stiffen up requirements on sale and leaseback schemes. It also said that there was little immediate help for the mortgage or housing market through this budget. It also said that the new announcements on scrapping stamp duty to 80 pct of the equity value on the shared equity schemes would not provide any short-term relief to the first-time buyers as the entry costs will remain the same and hence the buyers may not find them affordable. CML also stated that only a stamp duty reprieve can bring immediate relief to the first-time buyers as this will reduce the entry costs.

New Homes Marketing Board Chairman David Pretty reacting on the budget told that these measures would benefit only a limited number of homebuyers while the raise in stamp duty would affect everyone.

While the overall UK property market is holding up remarkably well in what are difficult market conditions, there is a good chance that we may see a substantial fall in both demand and prices at some stage. Even though interest rates are on the way down, leading (eventually) to lower mortgage payments, the forecast slowdown in the economy will put pressure on the employment market.

There are signs that some home owners are already starting to feel the pinch as the cost of living continues to move higher, but the double whammy of a slowing economy could suddenly see the number of mortgage player in trouble shoot up. So what can you do?

Rather than wait for potential problems to unfold you should always keep your mortgage provider in the loop with regards to your situation and how you see it possibly progressing. If you are able to keep you mortgage provider onside there is every chance that they will help you when it is required, and they may actually be able to pass on advice which could avoid any future problems. The worst thing which you can do if you sense trouble around the corner is to sit back and let it happen, or bury your head in the sand.

By showing your mortgage provider that you are being proactive rather than reactive this gives the impression that you actually want to help yourself, and avoid any major problems. This is exactly the kind of attitude which many financial companies are looking for, and any concerns that your comments will be used against you in any way are unfounded. Life can be tough with a large mortgage hanging over your head, but there are people out there to help you, there are many who have been through similar markets.

Don’t ever think that it is just happening to you because over the next 12 months it will be those who do not help themselves who will have most to lose!

Over the last few weeks we have seen a concerted effort by the vast majority of central banks around the world to breathe some life back into the credit market, the internal market which provides vital funding for business. While there have been rate reductions in both the US and the UK, many UK mortgage holders have complained that their mortgage rates have not moved in line with base rates. How can this happen?

While on the surface a reduction in UK base rates would normally be the leader for a fall in UK mortgage rates, but these are not normal times in which the finance industry is operating. Behind the scenes the credit market is still in disarray with a vast number of traditional lenders not present, or at the very least not present to the same levels as prior to the credit crunch. This means that internal lending rates are still higher than base rates which is why many mortgage providers have yet to pass on any major reductions to their customers.

The ongoing reduction in worldwide interest rates will kick in at some stage and we will see lending rates return to more traditional level, but as ever with interest rate movements there can often be a substantial delay between the rates moving and the effect it has on the world of business. While there is no doubt that even the indication that rates will fall further in the short term will be well received by the markets, we are in a fairly unique position which many people may not have experienced before.

So is the worst over?

Too many people called the end of the credit crunch too early and it came back to bite them, so anyone who predicts the end of the current situation can only be guessing. The gradual reduction in interest rates on a worldwide basis is a major help, as is the indication that the central banks are willing to be proactive rather than reactive, but it will take some time yet to return to a more traditional market arena.

While the news on both the property and finance fronts continues to get worse there are still people in need of new mortgages, but where can you spot the best rates now? Everyone seems to be diving for cover with the credit crunch still ploughing on and all of the discount offers have disappeared.

Now is not the best time to be taking out a mortgage with the internal bank lending market still under pressure and many mortgage lenders looking to avoid all but the lowest of credit risk customers. Many are asking if the UK mortgage market could actually grind to a halt if there are any more financial troubles in Europe or the US. But could it really happen?

The truth of the matter is that while there is much pressure at the moment the situation will not drag on forever. It is in the best interests of all governments around the world to ensure there is sufficient liquidity for lenders and that rates are attractive enough for borrowers. If we were to see any further financial troubles in the money markets then the chances are that we would see a concerted effort by central banks around the world to ensure liquidity did not disappear, as well as a short sharp fall in interest rate to stimulate demand.

As for finding the best mortgages currently on the market this is still a case of looking around the major financial comparison sites and seeing what is on offer. Some lenders are still offering attractive rates although for how long remains to be seen, with uncertainty about the short and medium term direction of interest rates. There are still attractive rates out there but they may not be as much in the public eye as they have been over the last couple of years. Look and you shall find…..

You may need professional advice when arranging your mortgage loan, unless you are a competent financial advisor or broker. UK mortgages are financed exclusively by banks or financial organisations. There is no market interference by government bodies. Hence, the mortgage market in UK is highly competitive. Also, you can choose from a variety of mortgages, the type that suits you the best.

Most mortgages offered by UK companies work on a variable interest rate. Normally, the variable rate is fixed by the Bank of England. As the market is competitive, the lenders are keen to offer a rate that is somewhat lesser than the variable rate. Also, some companies offer a discount rate on mortgage loans. The discount rates may be applied for first few years of the mortgage. So, this makes the initial mortgage payments lesser than the payments made later. Even some lenders proffer capped rates. This thoroughly benefits the borrower, as the capped rate will be the maximum rate that the borrower will be paying even when the variable interest rates increases to a larger extent.

Some lenders give a cash-back incentive on the mortgages. These cash-back incentives are calculated with respect to the principal borrowed amount. The borrower will receive a certain percentage of the borrowed amount at the end of the mortgage. If a borrower wishes to close his mortgages earlier than the fixed term, then he has to pay pre-payment penalties. That is, he will be charged an additional amount along with the total amount to be paid towards the mortgages. Normally, the pre-payment penalty is calculated as some percentage of the outstanding amount.

There is another type of UK mortgage – a self certification mortgage. Mostly self employed persons who have no means to prove their income opt for this mortgage. If the borrower borrows an amount less than the value of the house and he makes a down payment, then the lender will offer him the self-cert mortgage. But, these mortgages carry higher rate of interest due to the risks involved for the lender.

In a fixed interest mortgage, you will get a fixed interest rate for the whole period of the mortgage or for some years. Normally, 2 to 5 years is the period for fixed interest mortgages. The borrowers can rest assured that the interest rates will not fluctuate and they have to pay only a fixed monthly payment. But, the fixed interest rate is offered at a slightly higher rate of interest and hence if the interest rate falls, then the borrower may feel sorry for his decision.

So, while getting a mortgage for your home, evaluate the risks involved and your repayment capacity. If you can repay the monthly installments without any delay, then only you will have peace of mind. Otherwise, you may get a bad credit history. So, you should thoroughly study every detail before getting mortgage. Also, if you feel that your rate of interest on your mortgage offered by the company is higher than the prevailing market rate, you can refinance your mortgage from some other company.

In recent years, arranging a loan has become very popular in UK as it has now become easier to borrow money. Consumer finance has become very popular, aided by variety of loans available with low interest rates. Secured loans are widely accepted as they suit the needs of the people who own property. Secured finance provides excellent value for the money and also affordability by all classes of people. A variety of lenders offer secured loans to consumers providing wide choice in selecting secure loans and applying for them.

The amount to be borrowed with the help of secured loans is based on the value of equity which is available on the property. In other words, market value minus outstanding mortgage or any loan is the amount available. Secured loan provide plenty of benefits. They are the best available cost effective options to arrange for finance. Unlike other unsecured and standard loans, secured loans carry lower interest rate as the risk involved and borne by the lender is less as the loan is arranged against a security or asset.

Compared to unsecured loans, secured loans have high borrowing levels though the amount to be borrowed depends on equity. Thousand of pounds or even much larger amount of finance can be borrowed with the help of secured loans to meet any purpose or need. Under the secured loan the repayment period is very lengthy as compared to unsecured loans, resulting in low monthly repayments.

Secured loans are easily accessible even for the people with bad or poor credit unlike unsecured standard loan. Lenders face less risk with secured loans as the loans are arranged against a security or asset. Lenders do not mind bad credit for sanctioning finance. People with even tarnished credit history can still manage to enjoy lower rate of repayment as bad credit loans are easily available at reasonable rates.

Most people choose secured loans for consolidation of their loans and credit. Usually, for most people, large amounts of pay outs go for high credit loans and credit cards. Secured loans convert all expensive credit loans into single convenient consolidated loan, making it easier to repay in one single repayment ever month and just pay settle for a single interest rate. Bad credit secured loans can be used to pay off debts and thereby repair and improve the credit score.

All the major lending companies provide secure loans easily available through online. Just by booking through the internet and browsing the loan information a best deal can be clinched at competitive and affordable rates of interest. It is always wise to read the terms and conditions as well as interest rates by comparing between various available loan deals in the market to get a cheap and best deal of secured loan and an affordable rate of interest.

Secured loans make the life more comfortable by making available finance for funding or purchasing or to consolidate loans and credit. The loan repayments are on the lower side with reduce rate of interest. By harnessing the internet power it is very easy to find, compare and apply secured loans in a simple and straight forward manner, speedily at total ease and convenience. Competitive deals of loans are possible over internet giving better choice for greater value of borrowed finance.

Home equity loan also known as a second mortgage is a loan that allows the house owners to refinance their first mortgage. If you have taken fixed rate mortgage on your house property few years back, then the interest rates may be higher than the prevailing rates. So, you may want to get rid of the loans within a shorter period in order to save some money and also due to the desire of getting some extra cash to meet your financial problems.

If you are availing an equity loan, there are two options available – you can get a second mortgage or you can get a line of credit. The choice has to be made by you and also it depends on the way you will be spending your money. If you are opting for a second mortgage, then you will get a huge amount with a fixed rate of interest and you have to repay the loan in installments for a fixed period. You can also use the extra money you get out of your second mortgage for home renovation, education, vacation etc.

Line of credit is just like getting money out of your credit card. You will get approval for a certain sum and you can draw the cash whenever you felt the need and the current interest rate will be charged. A home equity loan is an easy source of cash for those who are tired of facing financial crunch now and then. Sometimes, the interest rates charged on your equity loan is slightly higher than your first mortgage, but they are much lesser than the interest rates charged on personal loans or credit card. If you are consolidating your debts through home equity, then this will also provide you with some extra savings on the monthly installments. You can collect this money to pay a part of your principal in order to reduce your mortgage burden.

You will be also benefited with the tax deductibility that comes along with the home equity loan. So, you can opt for equity loan for some major expenditure like education, consumer goods and trips. But, those who are spendthrift should not opt for home equity loan because it also carries some risks. If they are unable to pay their monthly dues, they may have to lose their home or they have to face big penalties. Also, some equity loans come with a mandatory lump sum payment to be made at the end of the mortgage term. Though a home equity loan is a great tool to finance your urgent needs, you should not fall into the bait of easy money and should plan before hand to avoid bad credit history.

While the US housing market was flying high and everybody was making money, the banks, builders and home owners alike there were no clouds in the sky and everybody was happy.  Since the onset of the sub-prime mortgage collapse we have seen US house prices fall and millions of US citizens put at real risk of being evicted from their homes after falling behind on their mortgage payments.  But why is there no solution yet?

As often happens in America the problem seems to be the ideals of each of the main political parties, with one favouring regulation and the other demanding a solution from the private sector.  While the politicians engage in cheap points scoring and fighting in Congress, literally millions of Americans are looking to pack their bags very soon and move home – only they have no where to go!

Each day that the politician cannot reach agreement sees more people moved out of their homes, more homes going on the market at sub-market prices and more pressure on the economy.  The situation has the potential to push the US into a very steep recession if no help is forth coming very very soon.  The banks know this and the politicians know this but they seem unable to put a package together – even though they have had up to 12 months notice that the situation was getting worse and worse.

Could this happen in the UK?

While you can never say never, the US financial industry has been guilty of pushing high risk loans to those who could ill afford the payments.  Even while the US housing market was flying high, behind the scenes in the sub-prime market, more and more home owners were falling behind with their payments – but was this headline news when the market was rising and rising?

It will be interesting to see how the authorities finally decide to resolve the situation, especially with the presidential election next year.  Who will be brave enough to make the big decisions? How long can they afford to sit on their hands? How will George Bush’s final months be remembered?

Even though the experts expect the UK housing market to fall back over the next 12 months, when you consider that the average house in the UK costs around £200,000 it is nearly impossible for first time buyers to get onto the housing ladder, without over stretching themselves.  So what can you do?

While the authorities have made much noise about helping first time buyers, there is very little that they can do.  If they offer financial assistance then they open themselves up to criticism for favouring a particular group of society, but if they do nothing they will further feed the frenzy for housing associations, which have pushed prices further and further ahead.  The bottom line is that you can’t have a free market and then complain when it does not go the way of the government.  Will prices ever come back down to more realistic levels?

Highly unlikely.  While prices have flown over the last few years there seems little chance of them falling back too far because :-

• There is still a firm demand behind the scenes.
• The authorities could not manipulate lower prices, because this would place many people in deep financial debt.
• There are still too few homes being built in the UK to cover demand.

The situation really is dire for first time buyers going forward, and even in the event of a property crash could we realistically expect prices to fall by 50%? If that were the case unemployment would be up and even fewer people would be able to afford a home.  This really is a nightmare scenario for the first time buyer, and there is little likelihood of prices and wages falling into line in the short or even medium term.