Buying property is still very much in fashion despite ongoing threats of housing bubbles and all-too-real rate hikes. The overwhelming majority of people want to own their own home, according to research published by the Council of Mortgage Lenders (CML). Of those surveyed, 72% said they would like to be owners in two years time and 81% in ten years time.
In terms of the perceived risks of owning, the greatest concerns were about keeping up mortgage repayments when ill or unemployed - 40% of respondents mentioned this. Despite a wide range of insurance products designed to protect mortgage payments, two-thirds of those who mentioned this risk did not have cover, which highlights the need to improve awareness around risk and safety nets.
But the aspirations of under-25s look rather different, with just 37% wanting to buy their own pad within the next two years. The figure rises to 76% for ownership within the next 10 years and appears to reflect budgets and lifestyles which make renting a more manageable prospect for many young people. Affordability constraints have become an increasing problem particularly since 2000. The CML is keen to find practical solutions for would-be homeowners who are struggling to get started.
Keeping it real
Overall, the organisation remains realistic and views recent interest rate rises as a necessary evil. 'Nearly two years ago we said that a modest rise in rates was needed to reduce the risk of worse pain later,' explains CML Director general Michael Coogan. 'The same message is equally true now,' he continues. 'Although never welcome, higher interest rates are now a necessary evil to encourage a gentle slowdown in the housing market. The small rises so far have had only a limited impact on consumer behaviour. We continue to anticipate further staged rate rises through 2004 as the MPC seeks to fine tune monetary policy. The cumulative impact will become more apparent as the year progresses - a one per cent rise in mortgage rates equates to around £60 a month for a typical £100,000 mortgage. Borrowers on variable rate loans should plan for higher mortgage costs and prepare accordingly,' he adds.
Coogan's comments come as new figures reveal the impact of the rate rise. Property website Rightmove said the price of the average house fell by 0.4% as the increase took effect. Viewed against the background of annual figures though, this slight decrease is not part of a slump or even a trend. The annual rate of increase has jumped from 15.6% to 17.2% with the average house in England and Wales now costing £193,965.
About time
So how hard is it to read the runes when it comes to property and timing? Industry experts are far too cautious to say 'Come on in, the water's fine'. But most agree that predictions of bubbles bursting and prices plummeting are not always helpful. Elliot Nathan of The MarketPlace, Bradford & Bingley is one of them. He makes several key distinctions between the bad old days of market meltdown and the current climate: 'While the property market has long been predicted to slow down, people should be wary about taking this to mean a crash is around the corner. The economic environment is very different to the one in the early 1990s, when unemployment and interest rates were high. Today, despite recent interest rate rises, interest rates are still historically low and unemployment levels too are very low. In addition, the average household spends considerably less on its mortgage payments than a decade ago and demand for property continues to outstrip supply.'
Future imperfect
Latest predictions from think-tank The Centre for Economics and Business Research (CEBR) examine the likely result of a natural slow-down. They say that the UK housing market is heading for a soft landing rather than a price crash over the next few years, with house price inflation falling to 3.5% in 2005 and a small price decrease predicted for 2006 and 2005. As a result, the average home would be worth less by 2007 than it is today, the CEBR said.
'Homebuyers though, do still need to budget carefully and ensure they don't overstretch themselves financially. They should factor in further interest rate rises to make sure that they can still comfortably afford their monthly mortgage repayments,' Nathan advises.
You could spend years second-guessing the property market and opting not to buy in case there is a downturn. No one can guarantee that the water will be fine. Just make sure you do your homework before you dive in.
More articles by Sarah Modlock
