House prices have risen for four months in a row, according to the Halifax. It said this week (3 November 2009) that prices are now 7.1 per cent higher than six months ago, when prices troughed.
The news echoed that of the Nationwide, which last week (30 October 2009) said house prices are now higher than they were a year ago, the first annual rise since March 2008.
Meanwhile, official figures from the government's Land Registry department reported five months of property inflation, although the figures are three months older than the two lenders' surveys.
Is a property market upswing good news for homebuyers?
The point is, all three are making positive noises about the property market for the first time in months. But what does that mean for homebuyers?
As ever, being cautious is crucial. No-one can really tell what will happen to property prices in the future, and anyone tempted to buy now on the basis that we're back in a rising market could end up making an expensive mistake.
Looking ahead to 2010, for instance, we will definitely see an election, and a new government may have policies which may not be helpful to the housing market.
There are also tough new mortgage proposals being considered by the City watchdog - the Financial Services Authority - which could put a break on any recovery in prices. (See: New mortgage rules will hit borrowers.)
The FSA has given interested parties until January 2010 to comment on the proposals, so key aspects - such as the banning of self-certified mortgages - could be brought in as early as Spring 2010.
Mortgage considerations for when interest rates rise
But that doesn't mean you should wait and see what happens before buying a house or remortgaging.
What is does mean is that you should be aware of what may happen and be prepared for all eventualities. If you believe, like some, that interest rates may soon start to rise, then taking out a fixed-rate mortgage as soon as possible may be a better option. (See: Interest rates held steady.)
If you think interest rates won't rise until after the election then you may be better off with a discount or tracker mortgage for the moment (learn more about types of mortgages).
Why house prices have increased
It will help give you clues to future movements if you understand how we got to this stage in the housing market.
"Demand for houses has risen in recent months due to the very low level of interest rates, the decline in property prices since the summer of 2007, and a pick-up in consumer confidence on the back of better economic news," says Martin Ellis, housing economist at the Halifax.
The Nationwide believes that recent property price increases have been due to more sellers returning to the market, creating more competition.
Martin Gahbauer, chief economist at Nationwide, says: “Although too early to tell, this may reflect a more natural level of stock available for sale coming to the market, alleviating some of the extreme shortages of property on the market seen during most of this year.”
In other words, once that demand has been met, prices may plateau once more. In fact, Gahbauer believes that the continuing recession will hinder the property market.
“A deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market’s recovery," he says.
However, as many believe that interest rates are likely to remain at or near their current record lows for well into 2010, mortgages should remain relatively affordable for a while.
Mortgage ‘payment shock’
Again, that doesn't mean potential borrowers should leap to take out a loan. Instead they need to acknowledge the possibility of rate rises, which could lead to payment shock – when mortgage repayments jump as a result of sudden, sharp rate rises - for anyone who borrows at the limit of their affordability.
For that reason, it's important to pick a mortgage that you would still be able to afford if rates climbed one or two per cent.
Related articles:
New Mortgages Rules will hit Borrowers
The Confused.com Credit Crunch Guide to Remortgaging
Confused.com’s Credit Crunch Guide to Nabbing your First Mortgage
