If 2011 Was Bad For Housing What About 2012

2011 has been a very tough year for those involved with housing, property and finance. The only saving grace has been the exceptionally low rates of interest available. If you didn’t have a mortgage or loan, then getting one was likely to be problematic despite the wishful thinking of the government and their weak initiatives for first time buyers.

House prices fell at the beginning and through of 2011 and only started to stabilise towards the end of the year. New build companies managed to survive trying market conditions by moving their mix of properties to larger more upmarket plots. Some builders were able to supplying social packages of new housing but more needs to be done.

What will Happen to House Prices in 2012?

• There are three scenarios. A healthy rise in prices starting in spring, a static market bumping along the bottom for most of the year or a further slump in prices.
• There are serious downside risks on prices that could slump 5-10%. Lending is still not freely available. The Euro may collapse and drag confidence and markets down still further. The economy may fall into further recession and unemployment, already set to rise could leap out of bounds.
• To sustain a price rise there needs to be an increase in fundable demand. Hefty inflation can take some of the inflated house values out of the market place but it will be slow to take effect and will not impact on 2012.
• Perhaps a static market in pricing terms is the best we can expect for 2012. Interest rates need to remain low and forbearance high to avoid a jump in negative equity and repossessions.

What will Happen to Mortgages in 2012?

• Wholesale money markets are struggling with the Euro. They are also seeking higher rates of return and interest rates will be higher in 2012. This is true even if Bank Rate remains at the current 0.5%.
• Marginal mortgages will continue to be harder to find. Self certification mortgages for example may be regulated out of existence.
• The interest rate trend is up – fixed term deals are now more expensive and progressively harder to find.
• Demand for mortgages will probably fall in reaction to the economy, funding costs and lack of activity in the housing market. This battening down of the hatches and a return to saving may provide a breathing space the housing and mortgage market needs to get back on an even keel.

Exceptions for 2012

• As with 2011 some areas will escape the downside of the general market. Premium properties in London were still strong as foreign investors bought property. The continuation of this effect will depend on the relative situation with the Euro countries and the flight of capital from unstable areas but sterling based property may survive.
• The Olympics and gentrification in some London areas like Whitechapel, and Elephant and Castle will create pockets of increasing prices.
• The split of retail banking from investment banking has the potential to create great change but it is likely to be delayed in implementation and take effect only slowly.