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'us Market Wobble Could Cause Problems For Uk Property Market'

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An article I spotted in the property supplement of a popular Cornish paper just today.

Nothing new in this for many on HPC but a surprisingly insightful piece which might help get sentiment changing a little quicker.

I'm not sure of Mr Dallings' credentials but more reporting of this type across the media would be nice...



PROPERTY@C-DM.CO.UK - www.thisiscornwall.co.uk)

09:00 - 15 August 2007

As consumer spending records have continued to tumble, voices have started to express concern that an international credit crunch may be on its way - and the effects will be felt in the always difficult housing market that is the West Country.

One of the main reasons for the current uncertainty is the volatility in the US bond market. The price of 10-year US government-backed bonds has fallen, pushing their yields above 5.25% for the first time in five years.

This means investors are not expecting interest rates to fall in the near future, especially as the Bank of England, the US Federal Reserve and European Central Bank have all been lifting borrowing costs in recent months.

Many experienced observers are worried by the sudden speed with which the change occurred, and the fact that it seems to confirm the view that the era of low interest rates has ended.

This will make it more expensive for companies and consumers to get their hands on cash. That in turn could lead to fewer private equity deals, and a cooling of the housing and stock markets - in the UK as well as in the USA.

Despite the width of the Atlantic and very different property considerations, it is not too fanciful to suggest that a downturn in the housing market in Barnstable, Massachusetts, could have eventual repercussions for Barnstaple, North Devon.

In recent years consumers have largely been in the driving seat, snapping up the ever larger mortgages lenders have been willing to advance. Personal borrowing has soared to levels many experts now see as unsustainable.

The latest figures from the Council of Mortgage Lenders showed that first time buyers borrow an average of 3.33 times their incomes to buy a home. Other measures show they are using 18.7% of their incomes to meet mortgage repayments.

Pessimists also point to a wobble in the US housing market, where prices have started to soften and high levels of what is called 'sub-prime lending', where money is advanced to people who either have poor credit histories or simply are taking on debt levels they cannot sustain, has fanned fears of a surge in mortgage defaults should interest rates continue to rise.

At the same time, some US real estate operators have been selling up, signalling that, for them at least, the market could not get any richer.

The sub-prime mortgage furore is now taking off in Britain. The Financial Services Authority (FSA) is to take action against five brokers that sell mortgages that fall into the category.

Following a review of the market, the FSA has said categorically that some mortgage lenders and brokers offer loans to people who should not be given them.

In Britain sub-prime mortgages account for between five and six per cent of all new home loans., and are worth about £16 billion a year. Around 160 sub-prime deals are said to be on offer in the UK, with 80 per cent sold by mortgage brokers.

"Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history," says Clive Briault of the FSA. "It is therefore important that they are properly assessed and advised. We will not hesitate to take action where we find bad practice"

Estates agents across the Westcountry are watching the volatile financial markets with concern, together with the hints that the Bank of England will eventually raise the interest rate by a further quarter of a per cent to six per cent.

Jenny Cowling of Bideford-based Cowling-Levick says the effects of the three interest rates so far in 2007 are starting to be noticed by the industry locally.

"We are finding that the first-time buyers who purchased properties two years ago, at rates as low as two and three quarter per cent, are now coming out of those deals and having to re-mortgage.

"Life is now a completely different ball game for them, with interest rates where they area. A further rise in the rate could spell real problems for hard-pressed homeowners, and for the property industry as a whole".

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It is my personal opinion that all those holiday homes (especially/and holiday-BTLers) bought over the last 5 years (and let's face it, hardly EVER used) will be hastily put on the market shortly as the owners have realised [a] they don't use it even if they thought about renting it out to help pay for it, they never got round to it [c] if they bought it to rent it out, it's never covered its cost ..... and now, they need/want the money to cover their *rses back home on their own primary mortgage/debt so they don't lose face with the neighbours.

I suspect most of the new builds ... still building (damn some of them seem to go up very slowly) might never complete, or will be hastily finished and dumped onto an already over crowded market.

When the only buyers are locals, with a combined household income of £25-35,000 who can only get a mortgage of 3x salary + their savings... a lot will have to sell at £80-120k I suspect.

Just my personal opinion, based on my personal observations in the area over the last 2-3 years as the area changed to be "London on Sea and sod the locals". Ha! Thanks rich wannabes for finally doing something for the area and upgrading all that damp old property before flogging it off cheap.

I hope.....

Edited by ScaredEitherWay

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