There is a lot of talk in the media at the moment of the possibility of a second dip in the UK housing market. There is a good chance that there could be a second dip particularly when the banks release all of the repossessed property that they are currently holding, into the market. When the supply increases then house prices could fall further, if the demand is not sufficient to soak up the extra supply.
However, I would argue that the demand is there. The two groups who stimulate the market are investors and first time buyers. Investors realise that properties stack up well at the moment, far better than they have for a few years. If you are investing for the long term it does not matter if prices fall in the short term, as long as you can afford to hold by ensuring you buy in an area with strong rental demand and positive cash flow each month after all the expenses. First time buyers are also keen to get on the ladder before prices go up although many of them are uncertain about what the future holds due to all the scare mongering in the press.
The main problem lies with the UK banks and their lending policy. Understandably they have learnt their lesson and I am sure will now lend more responsibly than in the past, which has got to be a good thing. However, for the UK market to recover the lending availability has to improve. The banks are already being cautious by restricting their lending on Buy to Lets to 75% Loan to Value so they have plenty of buffer in case prices fall.
They are also being careful of whom they lend to although I would question the logic behind some of their decisions. The Lloyds TSB banking group now owned by the government (or rather the tax payer) restrict the number of mortgage across its brands to a maximum of nine. Most experienced investors, with a reasonable sized portfolio, would exceed this limit and so would not be able to get further mortgages for any lender in the group including; Birmingham Midshires, Halifax, Lloyds and C&G. Ironically these banks seem to be happy to lend to a complete novice investor, with absolutely no experience and so someone far more likely to make mistakes than an experienced investor to whom they will not lend. It does not really make sense.
But the real problem is that the banks are instructing surveyors to down value properties in their surveys. Most surveyors would say that a property is worth what someone is prepared to pay for it. However, this wide spread policy of down valuing property ignores the fact that there are buyers prepared to pay the agreed price. When the property is down valued the mortgage offer is adjusted down and often not sufficient enough for the buyer to afford the property, so the sale falls through. The surveyors are under pressure from the banks and they don’t want to be sued for getting it wrong.
Willing buyers are not able to make the purchase they want and so the market stagnates as people get stuck in chains and the net effect is less sales. Less sales will lead to a fall in prices and a general down valuing of the market. Thus the second dip that the press seem determined to talk us into.
This is bad news for everyone, including the banks who will have even less security and equity on their existing lending. With many people potentially in negative equity unable to afford to move, the market will stagnate further and take even longer to recover. Again bad news for everyone.
If we are not careful we will get to the point where no one can sell or buy and the only solution will be to do every property transaction as an option. I am convinced purchase lease options will become far more common place over the next few years.
What we need is some positivity in the press to encourage first time buyers to stimulate the market and general easing of lending criteria so that more people can access the funds to buy the property they want to purchase. And ideally an end to this policy of Banks telling surveyors to down value property.
Come on UK Banks….sort it out. As owners of many of the banks, the new government should wake up, smell the coffee and realise what is going on. Unless something changes I predict that the UK Banks will cause a second dip in the UK house market.
Founder, Property Investors Network