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The Micawber principle

Nil desperandum. Never despair. This quotation is commonly attributed to the Charles Dickens character Mr Micawber, noted for his belief that “something will turn up” and that one should remain in hopeful expectation. That this character was destitute for many years does little to support his contention but, as with all good stories, there was a happy ending – but one that first required a change of lifestyle.

Society has changed much in the 160 years since Dickens wrote David Copperfield but there is evidence that many people still place their trust in Mr Micawber’s principle.
This is seen in the housing market, where buyers, owners and sellers often have unrealistic expectations for the future. There is also a host of commentators only too willing to predict future developments based on scant or false information.

An example of this was the analysis of the mortgage lending figures for February. The consensus among commentators was that a 20 per cent uplift in mortgage lending was caused by changes in stamp duty in March, the contention being that this encouraged more first-time buyers and house-movers. A closer look might have revealed that as the comparative was year on year, it may just have been the dreadful weather in December 2010 that made house viewing difficult.

It would be more educational to look at some of the underlying factors before forming a view on how the property market will move in the longer term.

London and the South-east is a special case. Population rises and shortages of all property types are likely to persist, resulting in firm prices at the very least.

Earnings in this region exceed those of other areas but entering the property market will remain difficult for most buyers and many will have to accept smaller properties and possibly longer commutes to achieve their dream.

Elsewhere in the country, there are regional and local variations in prices and availability and here the market demand is greatly affected by the overall levels of economic activity.

Much has been made of lending restrictions and increased deposit requirements making it harder for many to borrow the amount they seek. In fact, some may need to reassess their position. This may also be the most sensible option in the longer term as borrowing costs are not likely to reduce in the foreseeable future and income levels are unlikely to rise significantly until the economic outlook improves.

For those looking to buy property it continues to prove difficult to find a mortgage and, while interest rates seem attractive, lenders are now increasing costs through bigger arrangement fees. Buyers must take into account all the costs when deciding on the most appropriate deal for their needs and look at the real cost to them over the period of their loan rather than relying on the quoted APR, which will be set based on the full term of the mortgage. In short, buyers beware and take advice.

Richard Fox is chief executive of the Society of Mortgage Professionals

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