Housing market emerging from hibernation

Demand to buy is rising, while mortgage rates are being cut. So why should we still be cautious about any housing market resurgence?

Despite the issues of the last few years, there is still a desire to buy homes within the UK.

The National Association of Estate Agents reported that March saw a sharp rise in enquiries from an average of 268 house hunters to 290 house hunters registered with each branch, the highest level in eight months.

Wanting to own a home is nothing new to Brits. It is ingrained psychologically within us that we need to own our own home, hence our attitude towards renting – “you’re just throwing money away” – is the polar opposite to many of our European cousins.

However, there is also an economic argument in favour of buying.

Renting is more expensive

Research from Halifax has found that buying your own home is around 14% more affordable on average than renting.

The lender reckons that the average monthly costs associated with buying a three-bedroom house in the UK - things like mortgage payments, housing maintenance, alterations and insurance – came to £608 in March. That’s almost £100 cheaper than the average rent paid on such a property, of £706.

Here’s the breakdown that Halifax has put together of how buying compares to renting across the UK’s various regions

The elephant in the room with these findings is that buying costs are so low because of the ultra-cheap mortgage rates on offer with bank base rate mired at 0.5%. And while that appears likely to remain the case for a little while, it cannot last forever. There is still plenty of economic uncertainty around, which will no doubt plant a few seeds of doubt in prospective buyers’ minds about tying into a mortgage that is only going to get more expensive.

Daft sellers

There’s also an issue over actually closing a deal with a vendor.

According to Rightmove, asking prices over the past month have jumped 1.7%, despite the biggest rise in unsold stock since 2007. Sellers are simply being too over-optimistic with the valuations of their properties at the outset, and too stubborn over actually dropping the price when they fail to sell.

Given that Land Registry figures show that property transactions in the UK totalled just 66,000 – fewer than any month since February last year – it’s clear that property prices are currently simply too high for many prospective buyers to afford.

Getting a mortgage

Of course, just getting a mortgage is not that simple either.

The latest figures from the Council of Mortgage Lenders appear quite positive at first glance. Gross mortgage lending reached £11.3bn in March, a whopping 21% rise from February. However, that still represented a 2% fall year-on-year.

And looking at the lending for the first quarter as a whole does not make for a particularly positive picture either, with lending of £30.1bn, 11% down on the fourth quarter of 2010 and just 1% up on the corresponding quarter last year.

The CML said the mortgage market had “emerged hesitantly from hibernation”. It looks to me like it’s pressed the snooze button for a little bit longer in bed.

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The fact is that mortgages can still be pretty difficult to get hold of. And even if you can secure a mortgage, it may not be enough to secure a deal. According to the latest reports, as much as 40% of all property transactions may now be down to cash buyers rather than the likes of you and me who need a mortgage in order to buy. That’s not a healthy sign.

New mortgages

However, to their credit, the lenders are attempting to do their bit by launching ever more attractive mortgages.

Last week HSBC revealed that it would not be charging fees on any of its tracker products. That’s an incredible deal, given that HSBC offers some of the most competitive variable rates in the market today. To get hold of them without having to stump up a penny is remarkable. For more, check out HSBC axes fees for mortgage customers.

Santander has also become the latest lender to offer a “Switch to fix” deal, where borrowers can switch from one of the lender’s tracker deals to a fixed rate mortgage without having to stump up an Early Repayment Charge.

Elsewhere, Nationwide has cut the rates of all of its three-year fixed rate mortgages by up to 0.2%, while Barclays has dropped rates on both its tracker and fixed rate deals by up to 0.32%. In truth, these deals are generally not market leaders, but they are still competitive and give borrowers a wider choice of decent lenders to choose from.

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Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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