Judith Heywood at the TimesOnline recently dissected the Bear Stearns credit crisis and how it will/could affect our UK Home Prices.

Why is the outlook suddenly more gloomy?

The sudden demise of Bear Stearns has revealed that the credit crunch crisis is deeper and more damaging than was previously thought. The emergency takeover of this US bank has caused UK banks to grow even more nervous than before. For the past six months they have been withdrawing mortgage deals. But now they are becoming even less willing to lend. Estate agents report that creditworthy potential homebuyers are being excluded from those loans still on offer. The latest worries have ruled out an early end to this troubling scenario.

Are all borrowers affected?

Securing a home loan is now much harder and more costly for all buyers – even those who have had no problems in the past. The supply of credit has dried up most quickly for first-time buyers, with lenders now channelling their funds into remortgages. So if you have substantial equity in your home, you might have better luck securing a good deal.

After years of good deals on home loans, David Miles, an economist at Morgan Stanley, says that lenders are charging according to what it costs them to borrow – not the base rate. Do not rely on any savings being passed on to you if the Bank of England cuts rates.

What about buy-to-let investors?

Loans for amateur investors are in short supply but more experienced landlords who have built up strong portfolios can more easily get loans to snap up a property. Their enthusiasm is bolstered by rising rents – up 9 per cent last year, according to Hometrack – as more potential buyers wait. Michael Coogan, the director-general of the CML, predicts that buy-to-let could outperform the owner-occupier market. Fionnuala Earley, of Nationwide, counsels against expecting a sell-out in the sector – more bad news for buyers hoping for bargains.
(more…)

Since at least the turn of the century, the twin booms in the housing market and the high street have seen Britain’s seemingly unstoppable army of consumers spending with abandon. In a “What the hell?” culture of “Buy today and worry tomorrow” that has gripped the nation, households have run up mountainous debts that now total £1.4 trillion.

But has that “tomorrow”, and a grim day of reckoning, finally arrived?

Millions are already feeling the squeeze from soaring utility bills, higher taxes and only modest growth in take-home pay. Now, the financial screws on Britain’s households are being turned still tighter as the global credit crunch leads banks and other lenders to ratchet up their rates for remortgaging and for new loans.

Although most people will get by, millions will struggle and hundreds of thousands will suffer financial trauma. And for the unlucky and unwise who have overextended themselves in the good times, economists fear that things may be about to turn truly ugly.

Economists have given warning that the high levels of debt in the UK are actually magnifying the effects of the credit crunch.

Households in the UK owe a total of £1.4 trillion to banks and building societies. More than £225 billion has been piled on to credit cards and personal loans while the remainder has been spent on bricks and mortar, the Bank of England says. Even the start of the credit crunch last year was not enough to stem the credit binge. Credit card borrowing rose by 1.25 per cent last year, while mortgage borrowing rose 10.8 per cent, figures from Experian, the credit reference agency, show.

However, bigger debts mean that households become more sensitive to any change in interest rates. Even the slightest increase can eat up a significant chunk of their weekly income.
(more…)

Home Buyers Get No Relief From Stamp (from Sunday Herald)

ALISTAIR DARLING has been accused of failing Scottish homeowners in his first Budget because he refused to increase the thresholds for stamp duty in line with property inflation.

Bank of Scotland estimates that more than half (52%) of home buyers in Scotland paid at least 1% stamp duty in 2006, and the typical stamp duty bill is £1449. But the figure is much higher in property hotspots. In the City of Edinburgh, for example, 72% of home sales were above the 1% stamp duty threshold, followed by East Renfrewshire (70%) and East Dunbartonshire (70%).

More Scottish homebuyers are also stung for the higher rates of stamp duty, with almost one in 10 Scottish home sales over the higher threshold in 2006.

If a property is worth less than £125,000, there is no stamp duty to pay. But on homes worth more than £125,000, buyers have to fork out 1% of the entire price. The duty rises to 3% of the total house price on properties worth more than £250,000, and to 4% on a house costing more than £500,000. So if you are buying at the very top end, you could be slapped with a bill of more than £20,000.

There are early signs of a slowdown in some parts of the Scottish property market, but prices still rose at an annual rate of 13.1%, according to the latest figures from the Bank of Scotland. The typical house price is now £144,897, although the average property in Inverurie, Edinburgh, Aberdeen and Helensburgh is more than £200,000, dragging more people into the stamp duty net.

Campaigners have long called on the government to raise the stamp duty thresholds to keep pace with property inflation. If the lowest threshold had gone up in line with UK house price inflation since its introduction in March 1993, it would now stand at £191,000. The higher stamp duty thresholds were introduced in July 1997, so they would now stand at £720,000 and £1.4 million.
(more…)