Little change on the home front in 2013 as things stay tight
Experts predict property prices will stay virtually flat next year. Chiara Cavaglieri and Julian Knight report
There has been a lot to celebrate this year with the Queen's Jubilee and the capital hosting a successful Olympics, but there is no getting away from the fact households have been under pressure.
Budgets were squeezed ever tighter and austerity measures hit hard, but with 2013 looming, what can we expect from the property market?
House prices have been relatively stable with the latest Halifax index showing that for November 2012 they were at an average of £160,879, virtually unchanged on a year earlier. Getting a mortgage remains an uphill struggle, but availability did start to improve slightly towards the end of the year, and while deposits are still very high, they did fall below 20 per cent for the first time in three years.
The general consensus from the experts is that we can expect more of the same in 2013. The Royal Institution of Chartered Surveyors (Rics) is expecting house prices to rise by 2 per cent over the course of next year, albeit with considerable regional variations – beyond London, the South-east and North-west, they think the rest of the country will see prices dip slightly, or remain flat. And, although still a far cry from sales figures in 2006 which amounted to 1.67 million transactions, Rics says the number will move up just over 3 per cent on 2012 to 960,000.
Estate agent Savills has predicted the average UK house price will rise by just 0.5 per cent in 2013, while Halifax also forecasts modest, very slow growth as the economy strengthens, albeit with a continued disparity between London and the South-east and the rest of the country.
"There has been a distinct, north/south divide in house-price performance during 2012 with the strongest gains in London while prices have fallen modestly in northern England, the Midlands and Wales. We expect this broad pattern to continue next year," says Halifax's housing economist, Martin Ellis.
Likewise the Nationwide's chief economist Robert Gardiner reckons downward pressure on wages will mean "house prices are likely to remain broadly flat or decline modestly over the next 12 months".
Even in the active London market there are signs things could be going into reverse, with the Office for National Statistics saying that prices fell in the three months to the end of October with the average home within the M25 fetching £388,000 today compared to £399,000 in August.
The Bank of England base rate has been at 0.5 per cent since 2009 and there is nothing to suggest it will move soon, but mortgage rates have been fluctuating. The average, five-year fix has fallen from 4.61 per cent in January 2012 to 4.27 per cent this month, according to comparison site Moneyfacts.co.uk. The Bank also recently reported that the average, five-year fixed rate on a 75 per cent loan-to-value (LTV) mortgage was below 4 per cent in both October and November.
Keener rates have come off the back of improved European funding conditions, as well as the launch of the Funding for Lending Scheme (FLS) which has seen some of the UK's biggest banks access cheaper funding.
Property site Rightmove anticipates muted transaction levels in the new year, but says there will be some improvement as the FLS fuels greater competition and an increasing number of successful mortgage applications, with attractive applicants securing more favourable deposit requirements and interest rates.
"On top of the small uplift seen in 2012, we anticipate a further marginal but encouraging boost to mortgage lending next year. This will be particularly welcomed by frustrated first-time buyers," says Miles Shipside, a housing market analyst for Rightmove.
But borrowers requiring higher loan-to-value (LTV) ratios can expect to continue to pay a premium compared to those with larger deposits. For the lucky few who have 40 per cent deposits, banks cut rates to record lows in 2012 and although the FLS may filter down and lead to more competitive high LTV products next year, conditions will still be tight.
"While mortgage rates will stay low, this doesn't necessarily mean more of them will be approved. Lenders are likely to keep their criteria tight, meaning first-timers in particular will continue to struggle. The Bank of Mum and Dad will be called upon more than ever," says Adrian Anderson, a director of mortgage broker Anderson Harris.
And, if we've learned one thing this year, it's that external pressures such as the eurozone crisis can be unpredictable. With no crystal ball, any decision is going to be difficult, but it pays to weigh up all your options. There is no way to know how long some of the headline cheap fixes will be around, so if you're looking to remortgage and you have decent equity, 2013 could be a great time to switch. Watch out for arrangement fees, however, as these have been creeping up as providers try to compensate for competing to offer the lowest rates.
For first time buyers looking to buy without the huge deposits, innovative products such as Halifax's Lend a Hand mortgage, family guarantee products and the Government's shared ownership (NewBuy) and shared-equity (FirstBuy) schemes, are worth investigating.
"The Government has increased its FirstBuy scheme by £280m which could help an extra 16,500 people get on the property ladder next year," says Charlotte Nelson from Moneyfacts.co.uk.
New homes are being built too – there was a 36 per cent rise in approvals for new homes in the three months to September, according to the Home Builders Federation, but the second-home market could stay at a standstill. "Buyers still view second homes as a discretionary purchase and until the property market shows signs of a significant recovery it is unlikely there will be any increase in demand," says George Wade, a partner at independent buying agents Property Vision.
However, for anyone looking to invest, 2013 could prove to be an opportunity. Landlords were the real winners of 2012 and the rental market was kept busy with lenders advancing just over 100,000 buy-to-let mortgages in the first nine months of the year, up 15 per cent on 2011, according to the Council of Mortgage Lenders.
Given the squeeze on incomes, rents may not have much further to go and house-price declines could erode equity, making it difficult for landlords to access the better mortgage rates. But existing landlords seem confident they will have another bumper year: a poll from LSL Property Services reveals just over a third expect to increase rents in 2013 by an average of 4.6 per cent.
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