House prices and mortgages- on the road to recovery?

Almost every day a new opinion emerges on whether the housing market is beginning to emerge from one of its worst slumps, or whether we're in a downturn that is going to go on for at least the rest of this year. We all know that what started the current recession was a credit crunch when the banks stopped lending to each other. Since then we've been looking for signs of recovery.

The UK government has cut borrowing rates so that they have hit a record low. One of the outcomes of this has been that the borrowers' favourite, the fixed rate mortgage, has seen a bit of a comeback. Or at least, the number of available deals on the market is going up; more on that later.Added to that, those who have bought have been saving money because we have seen stamp duty suspended for sales of less than £175,000 since September last year with confirmation in the Budget that this would be continued until the end of the year, and the starting of the Homeowners Mortgage Support Scheme (albeit after four agonising months of near silence).

With the Government trying to do their bit we might expect to have some clarity on where house prices are going. Not so; some think that we might have got to the end of the bad news, and others say a 40% fall in prices between September 2007 and sometime in 2011 will take place.As a result of mortgage interest rate cuts we've seen the important index of mortgage affordability come back down to apparently realistic levels - well, not really; the statistics are based on paying a large deposit to get a lower rate, something that first time buyers aren't well known for being able to do.

For most of us the real problem is that lenders want a hefty deposit; as much as 40%. The reason for this is (almost!) straightforward: unemployment is up. Job losses mean the risk that people can't pay their mortgages, and that prices will fall. So, lenders are being picky; which means that they're asking for big deposits to give them a cushion against the possibility of negative equity if a borrower isn't able to pay.Unfortunately, in the short term it's hard to break out of this. If you need a loan you'll need to come up with a large deposit to get the best rates, or pay a high rate of interest, which limits what you can afford. Neither of these does much to stimulate short term demand.

The uncomfortable reality is that at least in the short term, we're going to have to work out how to save that deposit for a mortgage!

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