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House Prices and Mortgages

House prices and mortgages guide

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House prices and the state of the property market have a close relationship with mortgage lending. Between the late 1990s and the mid 2000s, house prices soared in the UK, increasing dramatically both in property hotspots such as London and in many areas around the country.

This boom in the property market was accompanied by a period of cheap credit, lower interest rates and relaxed lending criteria.

Niche mortgage sectors such as adverse credit lending and buy to let also boomed in this period. However, this period of prosperity slowed when the global economic downturn and the credit crunch hit. The financial crisis was initially sparked by problems in the American sub-prime mortgage lending market.

During 2008, a tighter mortgage market appeared in which lending was more restricted. Poor economic performance coupled with rising unemployment meant housing transactions fell as would-be homeowners were not willing to commit, leading to a fall in house prices.

In the year to April 2011, Halifax said house prices were down 3.7%. However, low interest rates mean mortgages are affordable and there are signs that house prices are stabilising.

In our House Prices guide, we look at:

Negative Equity What negative equity is, how it affects your mortgage and finances, and how to avoid falling into negative equity.
Dealing with Negative Equity Some experts have predicted that one in four borrowers may find themselves in negative equity.

Why does it matter what house prices are?

If you're happy where you are and have a small - or no - mortgage, then it doesn't really matter what price your house would command. But if you want to move, it does. And if you've got a large mortgage, then if the value of your house is less than the mortgage is for you'll find it very difficult to remortgage.

If you have a mortgage that's bigger than the value of the property is secured on then you are in negative equity. This means you have no equity - cash - in your home and actually, you owe your lender more than its value, as explained in the negative equity section.

What other problems could there be?

Negative equity could eventually result in repossession. If you fall into negative equity and can no longer afford your mortgage repayments (for example, if you've lost your job or come to the end of a fixed rate deal and repayments have shot up) then you may end up in arrears. If the housing market is slow, you may not be able to sell your home and that could mean the lender repossesses it.

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Your mortgage

Purpose of mortgage: * Help

Purpose of Mortgage

A first time buyer is a buyer who has never purchased a property before and generally has previously lived with relatives or friends or occupied rented property

House purchase is when an applicant, who has been a previous purchaser/occupier, is intending to purchase a different property for owner-occupation

A remortgage occurs when an applicant wishes to switch a mortgage loan from one lender to another without moving properties. The existing loan is repaid by a loan from the new lender. Depending on the amount of equity, this could also be a means of raising additional funds.

A buy to let mortgage is for when a property is bought as an investment and rented out to a tenant who pays a rental income.

A right to buy mortgage is only available to council tenants or certain types of tenants where the landlord has received a subsidy from the Local Authority. The tenant must also fit certain eligibility criteria related to the type of property and the length of time they have lived there. The amount of discount depends on how long the tenant has lived in the property and is also calculated taking into account any improvements carried out at the tenants own expense.

A self build mortgage is taken out on a property that is either still to be built or still under construction. Typically, the lender will only pay out the loan in stages, corresponding to the completion of various stages in the construction. There are generally six stages to a build where your mortgage company will release funds to allow the project to continue. They are:

Stage 1 - purchase of the land or property;

Stage 2 - preliminary costs and foundations or preliminary costs and structural overhaul;

Stage 3 - main structure erected;

Stage 4 - making the property wind and watertight;

Stage 5 - first fix and plastering;

Stage 6 - second fix through to completion

This is a specialised mortgage product designed for people over the age of 55 , which allows them to release the some of the equity they have built up in the home; this could be through owning the property outright, or from the value of the home increasing over time.

The householder retains ownership of the house whilst being able to use the equity to boost their income. There are several products on the market, some of which you only pay the interest back during your lifetime, and others where you pay nothing back during your lifetime and the repayment is taken out of the estate on death. For this reason, it should be noted that the applicant should be aware that they will be asked if they have discussed with their family members the reasons for applying for equity release.

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