Property – there’s both good news and bad news

There’s again talk of the housing market recovering.

However, last week Money Week magazine broke ranks with the ‘green shoots of recovery’ brigade and predicted a fifty per cent collapse in property values by July next year and described the property market as an investment only fit for “suckers”.

So, who’s right – the optimists (most of whom seem to be in the property industry or politicians) or the doom merchants?

The optimists point to a rise in mortgage lending of £1 billion in August. The pessimists point out that net lending in April was at its lowest level for eight years.

On the positive side, HSBC has just announced that it is making £500 million available for mortgage lending to borrowers who only have a 10% deposit available. However, two thirds of all current mortgage offers require a 25% deposit.

The return of securitisation (the packaging of bundles of mortgages by lenders for sale to investors, freeing up more cash for further mortgage lending) with the first such deal in Europe for a year being done by Lloyds last week, gave hope of an easing of the mortgage famine.

The pessimists counter that the rising cost of borrowing will cancel out any increase in the availability of mortgage funding with Nationwide and Northern Rock raising the cost of their fixed rate deals and the Lloyds Banking Group expected to follow suite.

Looking at the overall economy, retail sales rose in September, but so did unemployment, currently at 8% and looking to exceed 10% by next year. People who are out of work don’t buy houses, in fact, they often have them repossessed.

The optimists point to a slowing of the year on year drop in house prices to 9.4% in August, compared to 16.3% in February but it’s still a drop and with real incomes falling, property buying in the UK remains difficult. The other fly in the ointment is the ticking time bomb of sub prime mortgages where about a third of them are more than 90 days in arrears.

So, prices going up or about to go down? It’s a troublesome one to work out right now – are you a glass half full or half empty person?

What is clear is that the property market and the economy remains in transition, with the only certainty uncertainty. Watch this space.