“Todays buyers determine the value of everyone’s houses”
“In the rush to analyse the impact of yesterday’s base rate reduction the majority of commentators have missed the point” says housing expert Henry Pryor. “Of course lower rates should be good for borrowers and those who have tracker mortgages will be better off almost immediately, but it’s the rates and terms offered to new borrowers that we all should be concentrating on”.
“The cost of mortgages is understandably important to all borrowers” he says “but the value of your home is decided by the prices that current property is selling for. It’s the classic tail wagging the dog. Last year, 997,000 sales dictated the value of the nations 25 million properties. Recent figures from the British Bankers Association suggest that the number of sales in the past 6 months is already down 33% so it may be that only half the number of homes change hands this year compared to 2006 and these few sales will determine what everyone’s homes are worth.
“Stay with me” says Pryor “because this is the important part. Today’s house buyers are new borrowers who are certainly not getting the benefit of yesterday’s rate cut, who are in fact facing higher rates, stricter conditions, higher arrangement fees and have to find larger deposits. As a result, there are fewer of them (less demand), they can afford less and the prices they pay will therefore be lower. The result” he says ” is that your house is worth less even though you didn’t actually take part.
Pryor concludes, “People may be concerned about whether their mortgage has gone up or down as a result of yesterday’s drop in base rates but my guess is that they will be more worried that their house has fallen in value regardless and until lenders get back into the market and start lending again, they will continue to fall whether their mortgage payment goes up or down.