However, continuing issues with the Eurozone, coupled with economic recession, mean that the access to property finance will remain restricted for many buyers in 2012. Vendors are becoming more and more aware that an offer to buy their property, if not supported by pre-approved mortgage funding, is not an offer that can be trusted. Too many buyers, having had their offer accepted, have subsequently found it impossible to arrange a mortgage for the property in question.

The importance of obtaining a mortgage agreement in principle before making an offer for a property cannot be over-emphasised in the current market conditions, which are so different from four or five years ago. Here at Private Finance we have heard of several cases recently where the would-be buyer’s dreams were shattered by a vendor rejecting their bid in favour of an alternative offer which was backed by a pre-arranged mortgage approval.

If you are thinking of buying a property this year, do contact an independent, whole of market mortgage broker like Private Finance, who will be able to:

• tell you exactly how much you can borrow
• select the right mortgage product from lenders on and off the high street
• arrange a mortgage agreement in principle, well before you see the home of your dreams

Call us now on 0800 980 8777 to make sure you can obtain the mortgage you need before you find the property you want.

However, there are several reasons to be cautiously optimistic about the UK economy in general – and the UK property market in particular – in 2012.

1. The UK economy is in better shape than most of its European neighbours

At the close of business for 2011 the interest rate on Britain’s 10-year government bonds stood at 1.932%, a new record low. US and German 10-year bonds were trading at even lower yields – at 1.90% and 1.84% respectively. Italy’s yields remained above 7% (all data via Tradeweb). Low yields are positive signs as they indicate that investors regard UK debt as a good long term hold. Sterling is seen as a safe currency. Britain has a relatively stable government which has a clear plan to reduce the deficit, a central bank that can inject more liquidity into the economy if it wishes to, via quantitative easing, and a floating currency. This is seen by many economists as a good combination for surviving difficult times.

2. For many people, the cost of borrowing money to purchase a home is still at historically low levels.

The Bank of England Bank Rate was cut to 0.5% in March 2009 and will probably stay at 0.5% for much if not all of 2012. With inflation looking as if it will fall during 2012 (especially if there is a significant fall in the oil price as a result of a lessening of tension in the Middle East, an increase in supply from Libya and a slowdown in China this reducing demand) there is little pressure on the Bank of England to raise the rate in the near future. 5 year swap rates, which underpin the cost of a fixed rate offered by a lender, finished 2011 at a low point of 1.58%. LIBOR is more than 1%, but that is still a very low rate in historical terms.

3. There’s no need to put off purchasing property because of rate uncertainty

If clients are nervous about the risk of interest rate increases, this can be mitigated. For peace of mind, 5 year fixed rates are very competitive because of the fall in swap rates, some dipping below 3.5% for clients with a deposit of around 25% of the purchase price. In the case of a smaller deposit, say around 10%, then clients may wish to consider taking a shorter term product, perhaps a 2 year tracker rate, available for the right applicant at under 5%. This type of client should not lock in for too long without careful consideration, as it is likely that the cost of borrowing will improve for them as they increase the equity in their property and the availability of credit improves over the next 2 years.

4. There is unlikely to be price deflation in the prestige property sector

The UK property market consists of a number of sectors, which have behaved in markedly different ways since the credit crisis began. According to the Halifax Property Price Index, the average ‘mass-market’ house dropped in value from nearly £200,000 to £162,000 from the third quarter of 2007 to the third quarter of 2011. Both Halifax and Nationwide predict that average house prices will remain stable during 2012. However, our experience in the prestige property sector of the market is that prices there have been growing steadily throughout the past few years and are set to continue to do so in 2012, particularly for properties in sought-after locations or with unique features. The lack of supply, combined with growing international demand, is driving prices upwards. In addition, there is the ripple effect of London prestige property prices, with buyers looking outside London for more value; the latest house prices figures from Halifax show that the commuter town of Woking in Surrey saw the sharpest house price increase in 2011, with average prices increasing by 16% year on year. Investment in buy to let property is also unlikely to encounter house price deflation in 2012. Although the smaller property sector has seen a slight drop in rental yields for the first time, the limited choice of good quality stock for investors and the continuing desire to invest in UK property as world stock markets continue to underperform, mean that that prices are unlikely to fall in either the residential or buy to let sectors of the prestige property market.

5. Clients should not be deterred by general rising unemployment levels and should simply consider their own security of income in 2012

Lord Young of Graffham, peer and enterprise adviser to David Cameron, was forced to resign in November 2010, after claiming that many people in the UK had ‘never had it so good’ because the drop in mortgage rates since 2007 had ‘left most people better off’. Whilst he later admitted that he should have chosen his words much more carefully, the fact remains that, for anyone who does have capital to invest and a reliable source of income, either via a secure job or other revenue-generating activities, economic recessions often generate more opportunities than periods of economic stability.

For good advice on mortgages and finance – and the timing of any decisions that need to be made  – contact Private Finance on 0800 980 8777.

The situation now is somewhat different. Short term rates are increasing to reflect the perceived increased risk of lending between institutions (3 month LIBOR is just under 1.04% as at 1 December 2011) whilst longer term rates are, if anything, decreasing: 5 year swaps are just 1.77% as at 1 December 2011.

If you are tempted by a lower tracker rate today it might therefore pay to look at the redemption terms on the deal in case you wish to switch to a fixed rate. Look at the current pricing of the lender’s fixed rates and whether there is a switching facility. Then keep an eye on 3 month LIBOR and the lender’s new fixed rate offers in case you might want to switch to a fixed rate; you might not be able to secure a decent rate on expiry of the product term. A remortgage to another lender is an option and does have the attraction of being able to shop around, but this would require full underwriting and increased costs.

Timing would of course be everything! For good advice on mortgages and finance – and the timing of any decision you need to make – contact Private Finance.

Stagflation, that dreaded combination of negative economic factors where the inflation rate is high, the growth rate slows down and unemployment remains high, threatens to prolong what is already a significant recession in the UK economy.

The International Monetary Fund has finally been called in and has insisted on deep cuts in public expenditure, greatly affecting economic and social policy.

What I am describing here is 1976 although there are remarkable similarities to Britain in 2011 as far as housing market challenges are concerned.

So what happened next? Well, from 1976 onwards, there was a steady recovery in the UK economy and rapid growth in the UK housing market. Those that invested in property at that time built their wealth on the house price inflation that started in the 1970s, ran through the 1980s and 1990s (barring a few dips along the way) and only ran out of steam in 2007. Average house prices rose from £12,000 in Q3 1976 to £184,000 in Q3 2007, before dropping back to £167,000 in Q3 2011.

Back in 2011, we are currently staring at a similar crisis in the UK housing market and yet in reality that market is operating at two speeds. The wealthier ‘movers and shakers’ are adapting their businesses and their income streams to cope with the new economic reality and they are buying property; for many of them it is ‘business as usual’. In many cases at the top of the market agents just cannot find enough good quality property to satisfy demand. The rest of the population are left sitting and waiting even though, if they have a reasonably secure job and a competitively priced mortgage, they are in a pretty strong financial position. Is it just a question of confidence?

Whilst LIBOR has been edging upwards and 2 and 5 year swap rates are at near record lows, fixed rate mortgages are as cheap as they have ever been – below 3.5% for 5 year fixed rates. In inflationary times such as these, investing in real assets using cheap money has proven to be a good move in the long term, even if the short term conditions are causing uncertainty and nervousness.

The 1970s may have been one of the UK economy’s darkest hours until now. But the 1980s were when those that acted confidently – and accepted the long term nature of investment in the UK property market – did not regret it. As the economy grew rapidly, the value of their assets did too. Whilst not pretending that the current situation is a carbon copy of 1976, there are enough parallels to suggest that we can learn from history once again.

The number of house purchase loans increased to 52,000 in August, up 2% year-on-year and 7% month-on-month, while the value of house purchase deals grew to £7.9bn, up 3% on August 2010 and 10% on July 2011.

Encouragingly, lending to first-time buyers grew by 19,000, which was a 5% increase on July. The average loan to value ratio (LTV) for first-time buyers was steady at 80% (although there are an increasing number of 95% LTV now available), with just 13% of their income taken up by mortgage interest payments.

Home movers took out 33,000 loans in August, worth £5.5bn, up 8% by number and 10% by value on July. The average LTV of home movers was 69% and just 9.4% of their income went on mortgage interest payments – and that’s the lowest percentage of income that the CML has recorded since its records began in 2002.

However, the overall trend since the credit crisis of 2008 is for more and more potential first time buyers (FTBs) to choose renting over purchasing, despite the Halifax revealing recently that it is over £100 a month cheaper to buy than rent for FTBs. And housing charity Shelter says average private rents are now ‘unaffordable’ (more than 35% of average take home pay) in over half of local authority areas of England.

So, against the background of this slow but steady recovery in the purchase market and an increasingly overheated rental sector, what is holding back the confidence of so many would-be purchasers? Are they concerned more about job security than buying their own home?

With the move to more renting, institutional investors in housing are more likely to benefit, at the expense of private individuals, who will miss out on private capital growth opportunities as a result. The proactive reason for buying property is to benefit from the long term appreciation in the value of the asset. The defensive reason is to make sure that one is not priced out of owning a home as prices recover.

But perhaps the advantages of home ownership lie less in the capital gains and financial security of owning your own home and more in the pleasure of owning something you can decorate, furnish, extend and where you can watch your family put down its roots? Maybe there are more important things than those measured by straight financial calculations?

Perhaps the most ‘value’ one can derive from owning a home is from its capacity to be a vehicle for enjoying the simple pleasures of life?

It is not the only lender to do so; private banks such as Butterfield, EFG, Credit Suisse, Kleinwort Benson, Coutts and Investec (to name but a few) will use their discretion on pricing to reflect the balance of lending risk and banking opportunity offered by the potential client.

It’s not new, but it is an area of the market that some clients are not familiar with and, if they don’t have a relationship with a wealth management service provider, they might like to consider this kind of arrangement.

Private banks offer sophistication and flexibility, not just tiered pricing. They structure their loans in a way that is tailored to clients’ needs, as opposed to the client having to make adjustments to satisfy the lender. An example is something as straightforward as the acceptability of various means of repayment; private banks are generally far more flexible on this than mainstream lenders. In addition, private banks will tend to lend in excess of £1 million, whereas mainstream lenders prefer to lend up to that limit but no further.

Private banks will also better understand business people, professional and entrepreneurs and how their income can flow from many sources and in an irregular fashion. Their attention to personal service is also attractive to busy people who need to get on with their lives.

It is important to remember that a private bank is not the only place to go if you are high income, high net worth borrower, as there are many good deals in the high street which should not be overlooked. One thing that is certain is that this area of the property finance market does need a specialist broker to guide the client to the most appropriate lender and deal.

Average monthly costs calculated
For first time buyers, buying a home costs £110 a month less than renting, The average monthly costs (mortgage payments, income lost by funding a deposit rather than saving, spending on household maintenance and repair and insurance costs) associated with buying a two bedroom flat in the UK for a first-time buyer (FTB) equaled £567 in July 2011, 16% (£110) lower than the typical rent paid on the same property type (£677 a month).

Cost of getting onto the property ladder down by 40% since 2008
This is in contrast to 2008 when the average cost of buying was 29% (£212) more than the average rent paid. Since 2008, the cost of getting onto the property ladder has fallen by 40% (£383), five times the 8% (£62) decline in the average rent paid by private tenants.

Interest rates down – house prices down
The decrease in buying costs for a FTB has been caused by the fall in mortgage interest rates and house price since 2008. The average mortgage rate for a new borrower stands at 3.84%, down from an average of 5.91% in mid 2008. The average FTB house price has fallen by 14% over the same period.

20% deposits needed – but no stamp duty for most
First Time Buyers put down an average of £27,000 deposit in July 2011, meaning that their average loan to value (LTV) ratio was around 80%. But at least 95% of them (according to the Halifax) did not have to pay stamp duty, due to the temporary increase in threshold for FTBs from £125,000 to £250,000.

Parental assistance
Although there has been a significant improvement in the affordability of buying compared to renting, there were still 23% fewer FTBs in the first half of 2011 compared to the same period in 2008. This partly reflects the economic uncertainty over the period, but also the size of the deposit needed to qualify for a reasonably priced mortgage loan. Although 95% and even a few 100% LTV mortgages are available for FTBs, much better value deals can be obtained by those clients who have deposits of at least 20%. ‘Borrowing from the bank of mum and dad’ has become a familiar phrase since 2008.

Advice needed
With interest rates looking set to remain low for the foreseeable future – and house prices well below the peak of 2008 – this could be an ideal time to purchase property for the first time. However, anyone attempting to calculate whether they should release capital from their own property in order to help their children onto the property ladder should take expert advice about the pros and cons of such a solution.

The other crucial factor this number doesn’t take into account is how many lenders are offering these deals. Since the downturn, it has remained the case that only a handful of lenders – six to be precise – have been doing any volume of lending in what is a very subdued market. This number hardly suggests a competitive and thriving market.

This week the Council of Mortgage Lenders (CML) released lending data for last year, showing that Lloyds Banking Group, Santander, Barclays, RBS, Nationwide and HSBC were the biggest lenders in 2010, just as they were in 2009. Between them they accounted for 81.5 per cent of all lending, equal to just under £111bn. This was a slight decline from £119bn in lending in 2009.

The CML predicts that the final figures for 2011 will show the same six lenders at the top of the charts. But what is interesting, and encouraging, is that mid-sized lenders are finally starting to increase the volume of lending they are doing, a trend which is continuing throughout this year. Those lenders ranked between ninth and 15th in the table undertook a total of £19.6bn in lending last year, nearly double their combined total of £10bn in 2009.

While these lenders are still a long way off what the big boys are doing in terms of volume of lending, they are taking a huge step in the right direction. It is not hard to see how they are achieving it either. A number of these lenders – the list includes Northern Rock, Coventry BS, the Co-op, Yorkshire BS, Clydesdale and Yorkshire Banks, Bank of Ireland, ING Direct, Leeds BS and Principality BS – have been regularly topping the ‘best buy’ tables over the past 18 months with extremely competitive offerings. They’re often more flexible than some of the bigger lenders, because their size makes them more nimble. This is great for competition and the overall health of the market.

There are also a number of new entrants in the top 30, who weren’t there in 2009, including Saffron, Cambridge and Market Harborough building societies, along with Aldermore Mortgages and Tiuta.

While the mortgage market is a long way off recovery, with lending remaining muted, it’s not all bad news. There are definitely signs of increased consumer choice and market diversity, elements which have always been vital to the health of the UK mortgage market.

Meanwhile, lenders are busy slashing the pricing of their fixed-rate mortgages. Falling money market rates and a danger of lenders missing end-of-year lending targets, is resulting in some of the cheapest fixed-rate mortgages, ever. There are now several five-year fixes available at less than 4 per cent, for those with significant equity – 25 to 35 per cent – in their homes, or similar level of deposit. Coventry Building Society is the latest lender to join the ranks of sub-4 per cent five-year fixes, launching a five-year deal via brokers pegged at 3.49 per cent (4.3 per cent APR) for those with a 35 per cent deposit and £999 fee. For those who would pay a lower fee, there is a slightly higher rate of 3.60 per cent with a £199 fee.

While this is great news for borrowers, it may present a bit of a quandary. Do you opt for the security of a cheap fixed rate, even though the threat of an interest-rate rise seems to have rescinded for now? Or do you hold fire for a bit in the hope that fixed rates will get cheaper still? How low can they go?

Much depends on your individual circumstances. If you want to know what your monthly mortgage payments will be to help with budgeting, then a fixed rate makes sense. Given that these are some of the cheapest fixed rates we have ever seen, you won’t go far wrong in securing one now rather than waiting in the hope that they will fall further.

Those borrowers on some of the cheapest standard variable rates (SVRs) or trackers may feel that it is worth the risk in staying put for now while interest rates are low. It may mean that you pay more for a fix when interest rates start to rise but borrowers on the cheapest rates could cope with several quarter-point increases in base rate before they would be worse off than if they had opted for a fix.

But those on the more expensive SVRs – around 6 per cent – may as well consider remortgaging, as the rate they are paying will not fall and they may well be able to secure a cheaper fixed rate, particularly if they have a healthy level of equity in their homes.

Unless buyers have help from their parents, saving up this sum could take many years. Subsequently, parents are now central to helping first-time buyers onto the ladder, which hasn’t always been the case. Data from the Survey of English Housing shows that only four per cent of first-time buyers used a gift or loan from family or friends for a deposit pre-1980. In 2009, the Council of Mortgage Lenders (CML) said 80 per cent of first-time buyers under the age of 30 required parental help.

So with the number of first-time buyers at its highest level in ten months, according to figures out this week from the CML, does that mean more parents than ever are getting involved with their offspring’s property purchase? Perhaps. But also crucial to this increase is the rise in number of higher LTV mortgages now available. In the past few months, we’ve seen plenty more options at 90 per cent LTV and increasingly, more at 95 per cent, with Cambridge Building Society launching a five-year fix this week.

It doesn’t stop there. According to www.ftadviser.com, Northern Bank, based in northern Ireland, has started offering 100 per cent LTV mortgages to new borrowers. This would mean those without any parental assistance and no savings could buy their first home but it is an interesting time to be offering mortgage with such high LTVs. Property prices in Northern Ireland have fallen more significantly than across most of the UK, and with prices more than likely to fall further still, borrowing 100 per cent of the purchase price could be seen as foolhardy. Before long, the borrower could find themselves in negative equity, making it practically impossible to move or remortgage when the deal comes to an end.

While 100 per cent LTV deals and beyond were commonplace at the height of the housing boom, it is one thing when property prices are rising and showing no signs of falling. But as we have since seen, prices can fall as well as rise, and people can find themselves in negative equity.

Although the housing market will benefit from a resurgence in first-time buyers, what we don’t need is another boom and bust scenario. Responsible lending is required, at higher LTVs admittedly but more of the 90 per cent level than 100 per cent and beyond.