The second half of 2007 was particularly tough for mortgage lenders and the property market in general as the US sub-prime crisis hit credit markets around the world.
However, many players in the market are still optimistic about 2008, despite claims that the UK housing market could suffer a severe blow from the credit crunch.
After several years of rapidly growing mortgage markets, particularly in the specialist and sub-prime sectors, 2007 got off to a good start, with property prices rising at record rates and mortgage lending reached new highs.
The year also began with numerous warnings about the possibility of a housing market crash in the US, which, coupled with central bank fears over rising inflation, created a difficult market for borrowers and lenders alike.
Interest rates in the UK hit a peak of 5.75% in July and, as banks began to reveal losses from mortgage-backed securities in the US, money markets froze, taking Northern Rock to the edge of bankruptcy.
The resulting fallout has led to weakening property prices in many areas of the UK and many homeowners cutting back on spending to meet their mortgage payments.
However, Stuart Law, chief executive of Assetz, says the market has suffered, but the outlook is not as disastrous as some media reports have suggested.
He says: “There is a lot of speculation suggesting that a crisis in the property market is looming, and although much of this is based on unfounded claims and conjecture, the continued mutterings are running the risk of turning into a self-fulfilling prophecy.
“While there is no denying that the rate of house price growth will continue to slow in 2008, this is the result of a widely anticipated period of stabilisation, and is not the beginning of a housing market crash, as is being touted within the industry.”
Ross Bowen, managing director of Connells Survey and Valuation, thinks some regions of the UK are likely to suffer from falling house prices.
“During 2008 we are likely to see more regional variations in prices. There are also signs that demand for new build flats is beginning to suffer in some parts of the country,” he explains.
“While we expect house prices to come under continued pressure next year, the wider economy remains strong enough to resist any significant drop on a national level.”
The Intermediary Mortgage Lenders Association (IMLA) says a combination of high employment and strong demand for housing will help underpin the market in the coming year.
IMLA says 80% of its members have tightened lending criteria such as LTV ratios, while 60% have become stricter when assessing income and financial status.
Peter Williams, executive director of IMLA, says: “Lenders have a realistic but optimistic view on the market, which will be supported by good levels of remortgaging activity and a reaffirmation of prudent lending practices. They are noticeable more upbeat about their own firm’s volumes than they are about the market as a whole, pointing to the considerable opportunities that remain within such a large market.”
Many market commentators, including IMLA, believe interest rates will fall to 5% by the end of 2008, reducing the burden on homeowners into 2009 and helping to stimulate spending.
The outlook for the property and mortgage markets may not be as bad as house price indices and broker surveys make out. While house prices might level out, few are predicting an outright crash of the sort seen in the early 1990’s. Stable house prices might also help first time buyers, families looking for a larger home and help curb borrowing.
It is likely that 2008 will be a tough year, for homeowners, mortgage lenders and brokers. However, considering the record amounts of business in the sector recently there will still be opportunities for the shrewd business.
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