Autumn is set to be a critical period, as a large number of people come to the end of two year fixed-rate and tracker mortgages, taken out close to the top of the market. Many buyers who bought at the peak will struggle to refinance at a rate they can afford, due to the loss of equity in their homes and the stricter loan-to-value (LTV) requirements of lenders. Those who bought with a 90-100% mortgage will now only be able to get a LTV of 75-85%. A potential drop in value upwards of 10% means that a considerable amount of additional equity would be required in order to refinance.
Cluttons believes this could lead to the first wave of prime central London forced sales, creating a sudden surge in supply and potentially a second house price dip of around 5% for the coming year.
James Hyman, Partner for Residential Sales, comments: “The unstable balance between supply and demand in central London has been a major factor in creating dramatic price swings. The market has experienced various extremes, the latest of which being a total lack of supply pulling prices up quite sharply. Those selling now are achieving very close to asking price, and in many cases values just a few per cent below the 2007 peak.
“If we were to see a steady stream of properties coming onto the market now, it would help to keep prices stable, but there remains a ‘wait and see’ mentality, even from those falling into mortgage difficulties. There will come a point when people simply cannot hold on any longer and there is a real danger of this coming to a head in the autumn as people come off two year mortgage deals and realise they need to raise a significant amount of equity to keep their home.”
Those already struggling to repay their home loans should look to get their property on the market as soon as possible, as the current level of demand has created a strong sellers market in many areas, which is likely to be short-lived.
