Abbey cuts deposits

At long last some rather more competitive deals are beginning to trickle into the mortgage market. Today (Friday) the UK’s second biggest lender, Abbey, owned by the Spanish Bank of Santander, is cutting the minimum deposit necessary for its best fixed-rate deals to 30 per cent from 40 per cent.

It means buyers will still have to find a hefty down payment – but slicing ten per cent off the required deposit can only be applauded.

Abbey is offering a two-year fixed rate at 3.65 per cent on deals worth 70 per cent of the value of a property. It will charge just under £1000 as the arrangement fee.

Given that the past months have seen nothing but a tightening of mortgages any loosening up will be seen as encouraging for the market and further evidence that the property market is slowly starting to pick up.

The Bank of England’s latest decision not to tamper further with interest rates – but to hold them at their historic low of 0.5 per cent - is being interpreted by many property professionals as a sign that rates will be kept low for at least another year, possibly two.
This view is compounded by the Bank’s view that recovery from the recession will be slow and protracted and will take longer to achieve than had been earlier predicted.

The Abbey cut is almost certain to trigger copy-cat moves by competitors which is good news for putative borrowers.

The property market, though, is still hampered by a reluctance on the part of sellers to bring their properties to market in the vain hope that increased stability will bring in its wake a rise in property prices. There is little evidence to support such hopes, and certainly not in the short term. In today’s property market cash remains king. And first-time buyers need either rich parents or friends to be able to stump up deposits.

A further brake is that even at 30 per cent the mortgage market is still a universe away from offering competitive pay-back rates and 10 per cent deposits, a combination which was commonplace when the market was buoyant.

When similar combinations are offered by lenders, who remain still largely timid and recalcitrant, and who are insisting that borrowers meet corset-tight lending criteria, that first-time buyers, who are vital to the market, will be able to get on the housing ladder.

Buy to let market still strong

The scarcity of properties being put up for sale is acting as a serious brake on the health of the housing market. Would-be-sellers are hanging on as long as they can in the hope that prices will begin to pick up.

The sentiment is understandable but given that demand is now strong they are probably making a mistake. If they dither for too long they could miss the boat.

The demand for buy to let properties is also increasing. Cash is still king. But for buy to let landlords who want a mortgage there are now a number of offers around which are beginning to look attractive.

Cheaper properties – and the sharp reduction in mortgage repayments – has caused a lot of investors to re-think their strategies. Buy-to-let is certainly a more seductive option than it seemed a few months ago. And if a reasonable mortgage can be found the yields are certainly better than in recent months.

The downside, of course, is that mortgage companies usually demand sizeable deposits, the putative landlord has to tie up his or capital for a lengthy period to see a sensible return, and there is also the expense of having to refurbish and maintain older properties.

Alternatively, if would-be landlords want to buy new-build – the cyclone which has hit developers has produced cheap flats in empty blocks. – they come with risks attached.
The price might appear juicy but starter-landlords could find they have invested in a block in which most flats stay empty for years. This creates a moribund feel, which over time becomes one of dereliction, with an inevitable collapse in rents and yields

The pitifully poor rates for savers – many banks are paying almost zero interest – savers are plumping to put their money into bricks and mortar. Some are helping offsprings purchase their first property – stumping up the chunky deposit many mortgage lenders now demand – while others are putting a first toe into the buy to let market.

The old adage that property always comes back remains true. It is a tangible asset in an unstable climate in which so many bankers and politicians who control the levers of the economy have been exposed as flaky and untrustworthy.

More good property news. Or is it?

More figures showing that the property market is improving. This time from the Halifax. But they have been followed by the customary gloomy forecasts of several economists who argue that the market is still too fragile to start making optimistic forecasts.

Over the past few weeks it’s become almost a game. A group of supposed experts will produce cheery figures and another group will shoot them down. So what’s going on? The truth is that nobody really knows. The property market has taken a Hellish beating and is still in a state of volatility and uncertainty.

A number of factors stand out. It is indisputable that there is a far greater interest being shown in buying property than has been the case for many months. House price falls have begun to level off. Sales are up – but only fractionally. Lenders are still nervous and their continuing intransigence is acting as a brake on the market.

The latest goodish figures come from the Halifax. They show that the rate at which house prices fell tailed off marginally in April. The average price for a property in the UK dropped to 1.7 per cent compared with 1.9 per cent for March.

These encouraging signs of stabilisation are due to the government printing money – quantitative easing – and filtering it into the market in the hope that the banks and other lenders will begin to lend it back into the property sector. It is also to do with the very sharp blade with which the Bank of England has hacked into interest rates, producing far cheaper mortgages for millions of people as a direct consequence.

But, and this is where it gets murky, any improvements are to do with a sense of confidence on the part of the consumer. And this is extremely difficult to gauge.

Nationwide sponsors a consumer confidence index. It showed that 19 per cent of people in March thought things were getting better. But their latest survey shows a jump to 26 per cent in April. That’s very good news.

But such surveys must not be judged as the Tablets from the Mount. Indeed, cynics and pessimists would argue that they add up to little more than a bag of piffle. But if they are to be believed – and after all, when it comes to it, there’s not much else to go on – each contributes, in its own small way, to an overall feel-good factor.

Services and retailing – the latter led by the John Lewis group who have announced expansion plans – have just turned in some good figures. When those reports are added to the tiny green shoots in the property sector even the most pessimistic of the seers might dare to think that perhaps the worst of the recession is over or is drawing to a close.