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Following a 2 year period of stagnation with residential property sale completions down by as much as 50% at times, there is presently a constrained demand amongst residential property purchasers. In addition many potential first time purchasers have had their ambitions suppressed and now believe that property has become excellent value due to approximately 25% price drops. Finally, government forecasts of the need for an additional 120,000 properties per year to be constructed have not disappeared. All these factors indicate an imminent revival in the residential property market and suggest that a timely return to 2007 transaction numbers of around 1 million per year could be possible even in the short term.
What presently seems to be thwarting this amelioration is the non-availability of mortgage finance, especially for first time purchasers. Mortgage approvals are on the increase month on month but remain at levels appreciably below the mid 2007 levels. This appears to be more to do with supply rather than demand as the financial institutions continue to increase their lending to residential property buyers with some caution. The banks need to lend to be profitable and it is profit which will best repair their balance sheets, however it is vital that they lend carefully, it is widely held that their carelessness in residential property lending was a major cause of the recession in the first place. A Quick House Sale is still possible if the vendor prices the residential property sensibly and the purchaser has funds in place to complete the transaction.
Income multiples and lender assessment and credit scoring criteria appear to be set to return to an earlier time of caution and the availability of non status mortgages or impaired credit mortgages will be seriously restricted. Banks will carefully increase their lending in the residential property market but it will be only people with demonstrable affordability who will be favoured with such mortgages. This crisis has recently created a demand for “Sell House Fast” Companies who purchase properties extremely speedily indeed, but at below market value, using their own funds.
The result of all this will be a steady increase in residential property transaction numbers over the coming months. But mortgage applicants will be restricted on affordability by more careful income multiples and will need to continue to bargain hard for the residential property they want. Sellers will have to accept, especially if they want to Sell Home Fast, the reality that their residential property is now worth 25% less than 2 years ago, but they will gain by getting their next residential property at a similar discount.
So the merry go round of residential property transactions will carry on and the mortgage market will for sure prove to be the main inhibitor on residential property prices in the coming months and years. In time to come the past 2 years of tumbling residential property prices will come to be seen as an essential market correction brought about by a return to more careful lending values. In the meantime a gradual rise in residential property prices can now confidently be predicted.
