Not for many years have we faced a more complex economic situation, with world commodity prices being driven by the laws of supply and demand and seemingly all headed in a direction that makes even modest economic growth difficult to achieve.
Pundits were forecasting that interest rates were due to fall but forecasters are suggesting that rates will in fact rise as soon as inflationary pressures are known to be under control.
House prices have stated to fall but that is not the full story. There are regional variations and different outcomes for different properties. Houses are also holding up better than flats. So, what is the future for lenders? Capital adequacy requirements are presenting a very real challenge for even the biggest and most profitable firms which are having to go to the markets to increase their capitalisation and there has been some confusion among investors who fear another Rock situation. So far, most borrowers are managing their repayment responsibilities but there are some worrying signs that borrowers in the buy-to-let market are having particular problems. That market is characterised by the scale of some of the operators and only time will tell whether those feeling the pain are only small players or whether some of the multiple property borrowers are affected. Only time will tell how many properties may find their way onto the market. A large scale sell-off of buy-to-let estates probably represents the biggest risk to house prices.
All forecasters are now suggesting that house prices will continue to fall over the coming months, with most suggesting that values are likely to fall to 2004 levels. How this affects property owners will depend on their individual situation. First-time buyers will obviously welcome any downward movement but the impact on movers will be minimised so long as they experience similar percentage falls on both of the properties involved. Logically, transaction volumes should hold up, provided lenders are able to fund the demand for loans.
However, there are two other related factors that cannot be ignored. If the worsening situation causes increased unemployment, more individuals may have difficulty meeting repayments and unless funding issues are resolved, more borrowers may find the rising costs unaffordable.
Intermediaries can serve their clients interests by taking the time to cover off all aspects of their proposed transaction in the greatest possible detail, ensuring that the decision to buy is not merely based on the glossy brochure produced by the estate agent.
Richard Fox is chief executive of the Society of Mortgage Professionals