The paperback and kindle book ‘How to Buy Your First Home’ was first published in the May 2011. This provides an up to date perspective on housing and how the market has moved in the last few years. Available from Amazon
Phil Spencer is well known for his TV appearances with Kristie Allsopp and has also written Adding Value to your Home.

Publisher Blurb
‘Breaking everything down into simple and achievable steps, he makes this daunting process easy. Learn how to Find your perfect pad, – Get a mortgage that’s right for you, Negotiate with estate agents and sellers and Organise exchange and completion.’

Reader Reviews
‘The money-saving tips and an essential trouble-shooting section covers everything a first-time buyer needs to know.’

‘Easy to understand, full of lists, contacts and step by step advice.This book is both informative and reader friendly. Lots of case scenarios to help clarify what Phil is saying. Loads of contacts for research.’

Finance Blog Tip

Buying your home is one of, if not the biggest, investments you will ever make. It is sensible to read up on the subject and go into the market fully prepared.
Stay current and check out a range of sources as the market is in a state of flux. New government backed incentives are being developed to help first time buyers.
Read First Time Buyers Guide

Check out lots of resources before you commit to buying your first home. You are bound to pick up tips and could save yourself grief and money. Like scouts ‘be prepared’

Be scared if you have to pay taxes! National debt per tax payer $130,520

Be scared if you have your own debt! Personal debt per citizen $51,452

Be scared if you don’t understand economics and be very scared of anyone who claims to understand economics.

See the

  USA Debt Clock

ticking away your future!

Run your mouse over the clock and you will get definitions for each of the clock counters.
In the one hour I have been watching the clock the US National debt increased by $0.221 billion to $14,609,193,027,540.

UK Situation

It may be me but the clock seems to be ticking faster in the UK version. It isn’t as complex as the US clock but have a look anyway.

This clock covers government debt excluding bank bailouts.

Debt is equal to £15,298 per person or £33,250 per tax payer!

You may think this is a timebomb, I couldn’t comment but this clock is a variation on a theme.

The cost of renting for students has increased by 20% in the past 4 years. Renting costs are rising because there is less supply of rented accommodation. Landlords are renting to more professional workers who can’t buy a house. The increase in cost of student renting is similar to the increased cost of general renting.

Regional Variations in Renting Costs

There is a huge disparity in the cost of renting throughout the country.

The highest cost of renting is predictably in London, where the weekly average is £102.

• Exeter rents are £78
• Leeds £62

The cheapest places to rent include:

Middlesbrough, Stoke, Wolverhampton, Crewe and Bradford. Here rents are less than £45 a week.

Students on a tight budget, would be advised to think carefully about where they study.

18,900 homes were seized in the first 6 months of this year compared to 13,000 in the last 6 months of 2007.

The number of people in arrears by more than 3 months also rose by 29,000.

The Council of Mortgage lenders forecast a total of 45,000 repossessions by the end of the year.

Although the statistics (41% jump) are alarming, the % of homeowners defaulting is still relatively small. The vast majority still continue to meet mortgage payments However, homeowners have faced a tough 6 months, with disposable incomes squeezed by:

• Rising energy prices
• Rising petrol and diesel prices
• Increased cost of remortgaging, reflecting interest rate rises during 2007.

Negative Equity and Falling House Prices

• The Halifax reported further large falls in house prices in July. Prices fell by £3,000 in one month. The biggest monthly fall since 1983.
• House prices are have now dropped £22,000 from their peak.
• The Bank of England voted to keep interest rates constant at 5%

• The number of remortgages have fallen by 13%
• The number of households using their house for equity withdrawal fell by 37%

The slump in mortgage lending has been a powerful influence on house prices. House prices have fallen 17% in past 12 months and further falls are likely with the housing market showing its quietest volumes since the early 1990s.

These figures will put pressure on Government to take further action to bolster  mortgage lending.

See: scheme to ease credit crunch

Who Benefits from Falling House prices?

First time buyers. At the moment the ratio of house prices to incomes are very high, close to 5 times salary. Falling house prices will enable increased affordability. Also rising salaries and pricing can mean that real house prices will fall than more than nominal. If you are a first time buyer then waiting for a while can enable prices to become more affordable.

People wanting to buy bigger Houses. If your house price is falling in value, then it will also be cheaper to buy other houses. If you are wanting to trade up to a more expensive house, this will actually make it cheaper.

What Will Happen To Interest Rates?

The good thing about falling house prices is that the cost of mortgages will not increase. If anything falling house prices should encourage the MPC to cut interest rates. This is because lower house prices will contribute to lower growth and lower inflation. However, this is complicated because:

1) Due to credit crisis banks are not passing base rate cuts onto consumers
2) The economy faces cost push inflation, e.g. rising energy prices e.t.c.

Therefore, interest rates may not fall much, but, it won’t become more expensive to pay for a mortgage

The Dangers of Falling House Prices

The main problem of falling house prices is that it will lead to lower consumer spending and could threaten a recession like in 1992. This could lead to lower growth and higher unemployment.

Negative Equity. The other danger of falling house prices is for people who bought recently, especially those on 100% mortgages. With house prices falling, people could be left with a mortgage greater than the value of their house. However, negative equity is not necessarily a disaster. If you are able to keep living in your house and pay off your mortgage payments it will only be a paper loss. In the long term house prices are likely to recover.

If you find yourself in a situation of negative equity the best thing is to try and budget so that you are able to keep up with mortgage payments. Try reducing unnecessary expenditure, and look at ways of raising incomes.

How Much will house prices fall?

The biggest cause of falling house prices at the moment is the difficulty in getting a mortgage. It is the drop in mortgage approvals because of the credit crisis that is squeezing housing demand. The Bank of England have tried to inject money into the money markets. However, if this is overcome, then prices may fall less than some people expect. Interest rates are relatively low, supply is still constrained and there are many people who would like to get a mortgage. If you wait hoping for house prices to fall 30%, you may never get round to buying a house.

Surviving a recession  at Economics Help

The government and Bank of England have been concerned about how the level of mortgages has dried up since the start of the subprime crisis.

The scheme allows big banks like Natwest, HSBC, Halifax and others to exchange mortgage securities for government securities. Government securities are much more trusted and hopefully this should ease interbank lending and overcome the problems in the mortgage sector.

However, the Council of mortgage lenders indicated that they the scheme may not translate into lower interest rates for homeowners. The Banks were not enthusiastic about the terms of the deal, which required a premium for exchanging securities. Also in the current climate there are little competitive pressures to reduce rates and the Banks may keep their stricter lending criteria for a while.

See: More details on the Bank bailout and whether it will help overcome the problems. 

How Much will House prices Fall By?

Halifax predicts a moderate house price fall of 5 -10%. The reasons for a moderate house price fall are:

1. Unlike the US, the UK has a shortage of supply, this is unlikely to be addressed in the short to medium term. Therefore with supply constraints it is not unreasonable for the ratio of house price to income to rise.
2. Affordability of Mortgages is below the historical high of the early 1990s. The main reason is that base rates (cut to 5% recently) are much lower than in the 1990s slump when interest rates were in double figures for several months.
3. Base Rates likely to fall. The slowdown in growth and inflationary pressures is likely to cause a fall in interest rates. As interest rates fall, it will help restore the attractiveness of buying a house (even if it is difficult to secure a mortgage)

Prospects of 30% Fall in House Prices

Despite the difference between the UK and the US, there are still some reasons why the UK could suffer a housing slump.

House prices have risen much faster than in the US. The average house price (just below £200,000) is out of reach for the average first time buyer.

1. The credit crisis is causing a rapid decrease in the number of available mortgage products. Firstly 125% mortgages were reduced, but now many banks are withdrawing 100% mortgages. Increasingly big lenders are asking for big deposits of upto 25% – this is making it much more difficult to secure a mortgage. The fall in mortgage lending during 2008 is quite significant.
2. Mortgage lending in the UK accounts for a high % of disposable income. In the UK the total mortgage lending is 125% of disposable income (higher than the US where it is 105%)
3. Spread betting on UK property prices suggest that markets anticipate a fall of 14% over the next 12 months to april 2009

Related:

• Why the Pound is Falling against the Euro
  
• Why the Dollar may no longer be the reserve currency

Mortgage repossession orders in Manchester rose 11% to 1,035 last year and nationwide repossession orders exceeded 95,000, a level not seen since 1993. Knight Frank estate agents estimates there has been a 15%-20% “correction” in Manchester house prices in the last six months.

• The Fed has many difficult choices to face. Despite its valient efforts to bail out the financial sector there are many who worry that another bail out only stores up more problems for the future. – The problem with bailing out finance sector

• Mortgage companies are increasing the cost of mortgages. (My mortgage lender didn’t pass on the recent interest rate cut)
• Ending 125% and 100% mortgage. Firms are increasingly wanting 10% and 25% deposits, making it very difficult for first time buyers to get on the property ladder
• Weakness in house prices. The increased difficulty of getting a mortgage means there are less first time buyers coming onto the market. Therefore, house prices are likely to continue their downward trend. However, there is also a trend for the housing sector to be dominated by property and buy to let investors. i.e. there is a change in the composition of the housing market – increasing the likelyhood of an increase in the size of the renting sector.

• Why Subprime crisis happened
•  Losses of HSBC at BBC
• Subprime mortgage crisis