BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Talking Point: Forum  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
Forum
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Friday, 3 May, 2002, 10:25 GMT 11:25 UK
The property market: Experts answered your questions
Our mortgage experts answered your questions on the property market in a live forum.

  Click here to watch the forum.  


House prices in the UK are continuing to rise at an unprecedented level with the average cost of buying a house now standing at more than 100,000.

On Tuesday, Nationwide building society announced record house price increases, with the cost of an average UK home rising by 3.4% in the last month alone.

Over the last 12 months prices have risen by 16.5% - and by 90% over the past six years.

But while housing has become increasingly expensive - especially for first-time buyers - borrowing is still relatively cheap.

So what is going on? Are you a first-time buyer who feels locked out of the housing market and wants to get their first foot on the property ladder? Or a homeowner, who wants to move or save money on your mortgage?

What's in the property market for you?

The opinions expressed in this forum are those of our guests and not the programme. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.


Highlights of the interview:


Newshost:

The average price of a British home is more than 100,000. Some predictions say the boom will continue. But others say buying a home is becoming increasingly unaffordable. With me are David Hollingworth, a mortgage adviser from the Bath-based mortgage broker, London & Country and Patrick Currie, the Chief Executive of the property data company, Hometrack. Welcome both of you.

Onto our first question, Jonathan asks: Apart from first-time buyers, surely it is good news that house prices are rising?


Patrick Currie:

I think in general we tend to agree with that. If you think of it from the standpoint that houses are typically anyone's major investment and that housing prices go up over time is clearly a good thing. The challenge comes when you're trying to move from type of property to another, when the difference between the value of your current house and the value of the house you want to buy becomes wider and wider. That represents a real challenge and a struggle for many people.


Newshost:

Because for some people, if you're actually trading up then the rise in the price of the property you're buying may amount to more obviously than the rise in the property you're selling, so you could be losing that way.


Patrick Currie:

Absolutely. It becomes more difficult to move up to that house that you have been dreaming about.


Newshost:

So when we say, house prices are rising that's good news for homeowners - it's not necessarily true for everyone.


Patrick Currie:

Absolutely correct.


Newshost:

But on the other hand, houses are your biggest asset.


Patrick Currie:

They are and at the end of the day, many people are not trading up all the time. When they're looking to trade down then it becomes a very, very valuable asset and they get to take money out which helps with retirement of course.


Newshost:

So for people looking to trade down because either the family has moved out or they're looking to retire, it can be a good thing.


Patrick Currie:

Absolutely.


Newshost:

Paul Middleton asks: As a prospective first-time buyer, currently renting, I am conscious that prices are continuing to rise. Is it better to get on the property ladder as soon as possible to avoid being priced out in the future? I am a recent graduate, two years ago, living in the north-west, so at the moment prices are relatively affordable for myself.


David Hollingworth:

I think if he's got a good affordability issue here, then the question will be - well why not, lets get on the ladder and prevent that risk of you actually getting outstripped with house price growth. But what a lot of this comes down to - and the danger is that people forget there are a lot of lifestyle issues here. This is the case with a lot people who are looking for a first time purchase with people moving around a lot more, both with career and just general mobility - they don't want to be tied down. Then renting for that kind of person is still perhaps a good idea. If he's actually looking to put down roots for the next few years, then I can't see any reason why he wouldn't actually want to try and get on the ladder right now and benefit from any of the growth that we might see continuing into this year.


Patrick Currie:

I absolutely agree. It is a question of affordability and if you can afford it, it makes sense. Now as David said, if you are moving around a lot, what you have to factor into that equation is the transaction costs associated with the buying and selling of a house, because it you're doing that every two years, you going to have a significant amount of price growth just to cover your transactions costs.


Newshost:

It's not just the price of the property, it's also the price of actually moving.


Patrick Currie:

It's the price of moving, it's the legal costs, it's the Stamp Duty - all of that - which becomes very, very expensive.


Newshost:

Now we've been getting some fairly desperate emails from some people, who see house prices rising so quickly - after all we saw 3% rise in April from the Nationwide and 16% over the year when people were predicting a slow down. Some people are afraid that they'll never get on that ladder and that they'll never be able to afford the housing. He's one from Roger: I've been a first-time buyer for the last three years hoping that house prices will take a slump but this seems further away than ever. What do you advise? Shall I stick it out a little longer, hoping the market will take a nosedive? Or should I take the plunge and buy now?


Patrick Currie:

I think the reality is that there is very little risk that there's going to be a plunge in the housing prices. So to the extent that you can afford it, you should get in sooner rather than later.

Take a look at what caused the slump at the end of the 80s and the beginning of the 90s - it was a massive rise in interest rates. We saw base rates go from 7% to 15%. What that does to your mortgage repayments is effectively it doubles them - well that killed a lot of people and that hurt housing prices pretty significantly. But we're now in a period where there's relatively low inflation - where governments on a concerted basis are looking to keep rates relatively low in order to keep the economic momentum going in their countries. So I don't see the same sorts of risk profile as you had before.


Newshost:

Here's another vexed question from a vexed first-time buyer: Charles in Hertfordshire asks: We're first-time buyers and have recently found a place in St. Albans - that's a satellite town of London, one of the most desirable places in the country, I think - in order for us to find a decent place that we can call home, we had to get a joint mortgage for a house that was not originally within our budget. We are now spending about one-third of our total income on the mortgage. My main concern is whether house prices will start to fall? I believe this is a small risk based on the type of property we're going for.

My other question is interest rates. Do you feel there is a need to raise rates soon and why?


David Hollingworth:

I think this is typical case for a lot of people who are actually stretching themselves further than their original budget maybe. In that case, what they've got is a situation where the mortgage is taking up one-third of their household income. There is a strong argument now that they should be looking to put some insulation, if you like, against rising interest rates.


Newshost:

What do you mean by insulation?


David Hollingworth:

The way they can do that is by actually selecting the right type of mortgage. It is very important - if you are stretching and you really fear the rates may go up and therefore your mortgage payments are going up - look for the fixed or the capped option, which will always give you, whilst not the cheapest mortgage rate right now, the stability of budgeting over the next two or maybe even five years and you know exactly where you stand and that interest rate rises are really not going to be a big issue for you.


Newshost:

As a supplementary question, Charles Mower asks: How are interest rates likely to be affected if we join the euro?


Patrick Currie:

In general, I think the euro is pursuing the same sort of policies as the Chancellor is here of relatively low interest rates. Interest rates in general in Europe are at 30 to 40 year lows. So the risk clearly is in interest rates backing up as opposed to falling further. I think that is why you're seeing more and more people taking the option of fixed-rate mortgages.


Newshost:

So joining the euro is more likely to mean that interest rates go up?


Patrick Currie:

I don't necessarily believe that. I think we're going to see interest rates staying relatively low for quite some time because all of the incentives on the part of the governments that are currently part of the euro are to keep them low in order to keep economic growth.


Newshost:

Do you think that has any bearing on the sorts of decisions that people make about the type of mortgage they take out? Would you want to fix it if you think that interest rates are going to stay the same? Or would you want to be in a tracker, for example?


David Hollingworth:

If you think - and it is down to what you think - no one can actually tell you what's going to happen, we simply don't know - they are going to stay relatively stable, then you may go for one of the discounted or tracker options - they're currently offering the very lowest mortgage payments. But the thing here is if you are worried about rates rising, then you must put some stability in - that is the key thing. Don't try and second-guess where interest rates are going, if you're in jeopardy of actually finding your mortgage becoming unaffordable.


Newshost:

Now if interest rates stay the same, it seems that affordability stays pretty much the same. The Nationwide's pointed out that actually affordability across the country is much better than it was, relative to people's wages than it was say in the late 1980s. But there is this question of the value of a house compared to people's wages in the hotspots, like London, where it's something like eight times your net wage is the typical price of a house. Martin Lancashire asks: Do you think that banks and building societies are partly to blame for causing a boom because of the salary multipliers that they're willing to use when they're working out what people can borrow?


Patrick Currie:

You have to recognise that the salary multipliers have gone up in response to interest rates coming down. The realities with interest rates down - it means that your monthly mortgage is less so you can afford to pay a bigger total principle amount for the same amount as you could in 1990 when 1,000 a month probably got you 100,000 mortgage, currently it will probably get you something closer to 175,000 mortgage. Now it's the same monthly cost so therefore you can afford to pay a bigger principle amount of mortgage.


Newshost:

Melanie Cooper asks: my partner and I have a joint income of roughly 25,000. We're trying to buy a house for 89,500 but we're fighting a losing battle trying to get a mortgage. We're only being offered three times our joint wage, giving us 79,000. Where do we find the rest? It's the cheapest house we could find in our area but as the mortgage lenders have reverted back to the old ways of only lending three times joint wage, what are we supposed to do to get on the ladder? It's getting more and more out of reach.


David Hollingworth:

Firstly for the lenders to go back to the old ways of lending three times joint - what you actually find three times joint income is actually a fairly flexible income multiple right now. Many lenders are only offering two-and-a-half or two-and-three quarter times joint income and maybe three or up to four times single income.


Newshost:

Is this because they're cautious about prices being over-inflated?


David Hollingworth:

Well I think in order for the lenders to be prudent and they're very mindful also of what happened in the late 80s and early 90s, they are keeping tight control on what kind of multiple they go for. What they don't want to see - and it's in no one's interest for someone to borrow far too much - is they can't actually maintain the mortgage payments as they go on and perhaps we see rates rise and then suddenly we starting talking repossession. It doesn't help the lender and it certainly doesn't help the borrower.


Newshost:

Patrick, you seem quite relaxed about the whole thing. But even the lenders seem to be getting worried about the level of security on their properties in some areas - saying we won't lend 95% in this area - NatWest is one example of that. What do you make of that?


Patrick Currie:

Well I think you'd have to recognise that a 95% mortgage is in and of itself a very, very aggressive rate. One of the things we're not seeing now, that we did see in the late 80s and early 90s is a proliferation of 95 - 100% mortgages. And with the typical mortgage percentage that a second-time buyer has, according to the CMLs (Council of Mortgage Lenders), is currently about 62% and for first-time buyers it is around 80%. Well that's conservative - they are lending against two criteria: they are lending against the value of the property because they want to be able to get their money back and they're also lending against the amount of money that you earn in order to be able to pay the mortgage. So they look at those two in tandem.


Newshost:

And the fact that they're having a lower loan to value - the loan has to be a lower proportion of the value of the house - shows that they've learnt some kind of a lesson from the late 80s - the negative equity question.


Patrick Currie:

Absolutely.


David Hollingworth:

I think the other point there with regards to getting hold of the deposit, that is a problem some people find - particularly first-time buyers. Now what we are starting to see, it must be admitted, is that more people are looking for parental help there and are actually getting gifted from parents, help with the deposit in order to make that difference between what their borrowing capacity is and perhaps what the property price that they wish to purchase is. So that's not ideal and not everyone can do that but the lender is going to be looking for some commitment in the shape of a deposit.


Newshost:

Richard Giddings asks: My girlfriend and I are considering buying a small flat in North London - ok, I know there's always going to be the danger of negative equity but are there types of property, for example, flats, that tend to keep a better price? Also would it be better to wait eight or ten months and acquire that bigger deposit thus getting a better property or should we do what we can with our present funds and mortgage?

On this question of properties that keep their price - are there particular properties that keep their price or particular areas and other areas that don't?


David Hollingworth:

I'm sure Patrick will agree with this one - it's the old location, location, location. This is a saleability issue really. If you can afford to then a two-bedroom flat as opposed to one bedroom may open up more potential for purchasers when they do come to sell - so it may make it more attractive to more people. All these issues can help but location will be one of the key ones.


Patrick Currie:

I absolutely agree with that. The other thing you probably want to look at to avoid is trying to buy something that is totally out of step or out of character with the neighbourhood. You don't want to be buying a five-bedroom detached house in an area that really consists of three bedroom semis because it's going to be out of line with the market - it's going to make it more difficult to shift - that sort of thing you want to look at. You want to look at other sorts of issues regarding the very local market, such as are there a significant number of investor driven buy-to-let properties that are in that market place because if interest rates go up and a lot of them try to sell that's going to affect the value of your property if it's similar - those sorts of the things they should be looking at.


Newshost:

Russell Bishop asks: I am currently renting a flat for 520 a month with my partner. So why can I only get a mortgage for about 75,000 where the repayments are about 100 a month cheaper than I am already paying?

What Russell's saying here is that why should I be judged not to be able to afford a certain level of mortgage when I'm already affording more than that in my rent payments?


David Hollingworth:

What is happening now, more and more lenders are looking at affordability issues. They're not looking to say, no I'm afraid I can't do business with you - they're looking to do what they can to help you - that's how they make money. If you pay and you have a good track record of paying high rental then you can evidence that to the lender - it will go well in your favour and it may enable them to just stretch that little bit further to actually give you the mortgage borrowing that you require to get onto the property ladder.


Newshost:

So it's not just the salary multiples?


David Hollingworth:

It's not always - if you're looking to stretch further than the usual - up to four on a single income is the usual kind of multiple you'd be looking at. If you want to go beyond that, then these kinds of issues can actually be very helpful for you. Also the bigger the deposit the have, that will help you greatly and they may actually be able to stretch a little bit further on what they would be willing to offer you on the mortgage.


Newshost:

Jason Best asks: I am thinking of buying a second property, a flat in south east London, to let. I plan to keep the property for the medium to long-term, 15 - 20 years, in order to provide me with a lump sum when I retire, i.e. I am not worried about the rental income as long as it comfortably covers the mortgage. Do you think now is the right time to enter the rental market or have I missed the boat?


Patrick Currie:

That's a very tough call because I think the number of people who have gone into the buy-to-let market in the last two or three years has gone up rather dramatically.


Newshost:

So the answer might be yes, you have missed the vote.


Patrick Currie:

I think you have to degree missed the boat because certainly the yield on your investment is going to be a bit lower than it would have been two or three years ago, not only because flats are more expensive but also because rents haven't gone up as quickly.


Newshost:

Can you formulate the yield on an interest rate that gives people an idea of the sort of money you're making or is that too difficult to do?


Patrick Currie:

The easiest way to look at it is that if your annual outgoings are 6% of the principle amount then you clearly have to have a mortgage that's at that rate or lower. You are going to have to look at what's the normal rental yield for the area, what does it mean to me - should I be considering that probably on average I'm only going to have 11 months worth of rent in any one year because you need that cushion - do I have enough of cushion to deal with repairs, upkeep etc. It is not a very simple decision.


Newshost:

Do you think there are risks that there are some people who are going to be forced out of the buy-to-let market as a result of over-extending themselves?


Patrick Currie:

I think there are some risks and from my perspective they have come primarily anecdotally. When I get cabbies talking about the fact that they're having trouble with their three buy-to-let properties that they've got in south east London, that were renting easily two years and currently they're having trouble filling them up. That starts to tell me it's a little bit like the 1929 Wall Street Crash when J Pierpont Morgan pulled out of it because he was getting stock tips from the shoeshine boy. I think when you're finding a lot of amateurs coming into the marketplace then it's of some concern.


Newshost:

So buy-for-let is a 21st century equivalent of shares in the 1920s.


Patrick Currie:

Well maybe in the 1990s.


Newshost:

I'm a first-time buyer thinking of buying a shared-ownership property. There's a rent of 20 a month on the 25% that the other person sharing it would own (75% one way, 25% the other and you pay 20 a month on their share) and I would have the right to buy the property outright after a year. Is this a good idea?


David Hollingworth:

I think it's a very sensible idea. What they're actually doing is taking a stake in the property now at a very affordable level. So not having to buy the whole amount, just take a 75% share - you can get 50% or even less sometimes - take that stake now and then as your situation improves - hopefully you get wage increases etc. - you'll perhaps be able to take on a bigger mortgage further down the line and at that point you can staircase the ownership up to 100% - at that point you own the property outright, you are a property owner.


Newshost:

Patrick if you had a friend who was a teacher or a public-sector worker in London - prices seem out of reach - and they thought of share-ownership, what would you say to them about that?


Patrick Currie:

It's the only way they're going be able to get onto the property ladder so I think it clearly does make sense. There are many new schemes that the Government is looking at and that private firms are looking at to be able to provide this on a more wide scale basis.


Newshost:

What are the potential risks with shared-ownership mortgages?


David Hollingworth:

I suppose the only risk is that maybe you'd never actually get an improvement in your circumstances and you can't actually get up to 100% ownership but that shouldn't be too much of a problem - you've still got your home, you've still got a stake in the capital growth that you hopefully will see in the property itself. So should you move on, you'll still hopefully make some money if the price has gone up.


Newshost:

The big fear of people, the big myth that lurks in the background is the late 80s boom and the early 90s bust. Can you nail down a couple of the essential differences that people should remember when they're getting worried about that?


Patrick Currie:

In the late 80s there were a significant number of 95 and 100% mortgages. That left the lender with no margin and that left the buyer with no margin. So that if the value of the property went down at it was by definition negative equity. Secondly, we were in a situation where Sterling was trying to be kept in the ERM and the only way they were keeping it in the ERM was to jack up base rates pretty significantly so you saw interest rates double and I don't think you're seeing the same risk now.

So the combination of owners having more equity in their home so that they won't necessarily slip into negative equity, low interest rates and the prospect of interest rates staying down, at the end of the day is very, very positive for the housing market and mitigates the risk that you're going to see a sharp drop in prices.


Newshost:

David, you were quite young back in the late 80s but what would you say the big difference is?


David Hollingworth:

I'd totally agree there. But also we've got low unemployment at the moment. If people are worried right now that they're maybe a recession coming up then why not to protect that as well. You can insure yourself against unemployment which would take care of your mortgage payment which at least will keep you with a roof over your head. But it's absolutely those issues, the interest rates were so much higher than we're talking about now.


Newshost:

So don't worry about it - at least not for now.


David Hollingworth:

Let's hope so.


Patrick Currie:

And there is some protection available through fixed and capped rate mortgages.


News

Analysis

Tools

FORUM

TALKING POINT
See also:

30 Apr 02 | Business
04 Apr 02 | Business
Links to more Forum stories are at the foot of the page.


 E-mail this story to a friend

Links to more Forum stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes