An equity release firm has warned that a double-dip recession in house prices could be on the cards.
Bridgewater Equity Release has urged advisers to tone down their assumptions over future levels of house price inflation when selling products, which allow people to take equity out of their properties to use as income.
The specialist provider said too many advisers have been too bullish when it comes to making their own house price predictions, resulting in borrowers being recommended potentially unsuitable lifetime mortgage products.
Clearly fearing a mis-selling scandal, Bridgewater said it is concerned that clients who have taken out or are being recommended lifetime mortgages could be opting for products based on their adviser’s own house price assumptions.
Bridgewater warned that house prices are unlikely to grow much, if at all, in the next few years and then only at 4% pa thereafter.
It added that in a worst-case scenario of double-dip recession and zero inflation, house prices are likely to fall continuously until mid-2014.
It said that overall, and across the UK, there is a general anticipation of house price falls in 2011 of around 2.5% with modest levels of growth for the following four years: 2012 is expected to see increases of just 2.5% followed by 4.8% in 2013 and 5% in both 2014 and 2015.
Bridgewater said it wanted to stress that this is some way short of the average house price growth often cited by mortgage advisers when selling equity release products.
Peter Welch, head of sales and distribution at Bridgewater Equity Release, said: “I am consistently told by many equity release advisers that annual house price rises of 8% or 9% are the norm for the UK and therefore lifetime mortgages are generally the most suitable product for their equity release clients as the level of rolled-up interest debt will be less than the increase in house price.
“This bullish assumption tends to be based on an analysis of the last 40 years which takes in the massive wage and retail price inflation rises seen in the 1970s. This period completely distorts the house price picture, and to suggest that prices are going to continue to rise by anything like the levels we saw immediately pre-credit crunch seems ludicrous to us.
“The real likelihood is that we will see flat house prices at best in the next few years because of the economic cycle, particularly wage level restraint and low growth, and the state of our banks.
“We are unlikely ever again to return to the double-digit levels of house price growth the market has witnessed. It is much more likely that in the long-term, wages will rise in line with productivity (2%) and inflation (2%) and we will have growth of perhaps 4%.”
He added: “False assumptions of house price growth by advisers could spell real difficulty for those clients who are recommended and sold lifetime mortgage products.
“Just over the last few years, given falling house price levels, there will be many customers with lifetime mortgages who will be unable to access any further equity in their properties because their debt levels will have risen and house value will have fallen.
“This could be a real problem for many customers.”
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Comments
renovation perth
Thanks so much with this fantastic new web site. I'm very fired up to show it to anyone. It makes me so satisfied your vast understanding and wisdom have a new channel on the world..
Yes thanks plenty, including seeing other EAs views on things that affect our profession.
Thanks for asking though.
Haven't you lot got any work to do?
Rant - no not at all. The point I make with house prices is that we do not have a long enough period to see proper cycles. Also there have been extreme moves which would distort a graph. It would be better to take a mean average by maybe shaving the top and bottom 5 years off and showing a moving point average of the rest.
Also National figures skew the results - I was talking about my local areas in that the good areas with good links to London Europe and excellent schools are creeping up, the cheaper areas are static.
This also makes sense on the basis that those on lower incomes are the one struggling with finance, if you have a good deposit we are not finding funding an issue. (which if it had been kept like this then we wouldn't have had some much debt flying around)
VoS - Are you aware of something that we aren't? Has some managed to convince the banks to lend at 2007 levels again???
Personally, I prefer to use this as my guiding light:
http://imageshack.us/f/402/lifecycleofabubblechart.jpg/
The correlation is near perfect.
Economically we are going through an adjustment stage to shake out the debt imbalance. Just like when Nature sorts out a bit of over population with a new plague.
But all logic is lost when you throw in a bunch of humans as they are entirely irrational. In a supermarket a cheaper bit of steak and people think bargin. But no with houses the prices come of 20% no one wants to buy coz they are going down (no gone down) and then when they go back up 20% they say they are too high (no you are idiots and missed the boat). In most good areas prices will remain constant or possibly rise if supply remains low, and in the worse areas they will struggle coz people don't want to live there.
Its not genius its common sense but then again like I said before humans are involved so anything could happen............
It would sort itself out better with no global news as this has caused the 'sheep' or 'lemming' effect where most people all copy each other making the effects come as more extreme changes.
Nope, you were both wrong. The Daily Express called it:
http://www.express.co.uk/ourpaper/view/2011-07-21
Thankfully, they are a reliable source of information on such matters. The fact that the paper's owner has half a billion quid invested in property and that the Express property correspondent is an MP's wife doesn't undermine that sense of balance, as can be seen here:
http://img339.imageshack.us/img339/2149/24dailyexpressfrontpage.png
...or maybe "Bernard Matthews advised by watchdog to issue warnings to turkeys in run-up to Christmas"...
Tomorrows headline......
Cash4cars warn their buyers to buy in as cheap as possible!!
Yorkshire Agent, Given that the market spent ten years going up and since 08 have gone down, back up, sideways and off a bit my gut feeling is that we are nowhere near the bottom. Previous crashed tend to spend about as long in the down phase as they do in the up phase.
That said I’m still going to buy a house even when I expect them to fall anyway.
Truth is I believe - property wise certainly we are already firmly into the second dip. Highs up until summer 07, then dire throughout most of 2008, slight improvement late 2008, decent improvement in2009, then sluggish 2010 and worse in 2011 (not as bad as 08), can't be bothered to back these figures up with stats, too busy I've got vendors to convince into reducing their prices.
The question is where are we in the second dip, still going down or hit the bottom, some bright spark will tell us after the event.
Equity Release is legalised THEFT. My late father took a £25,000 release from Bridgewater calculated against 50% of the property value which at the time was £125,000.
5 years later when sorting out the sale of the property to secure monies for my mothers care I discovered that the Bridgewater deal actually transferred full title of the property to Bridgewater and that my Dad was simply a 50% stakeholder. To sell the house I needed their permission. The real "rub" though was that the day my father signed up Bridgewaters £25,000 became worth £62,500 (50% of the value) and the when the property was sold the value was £135,000..not a bad business to be in then was it? The story today is much different with house prices creeping along hence the switch to Lifetime Mortgages where I think a lot of the risk to the providers of these things is shifted onto the homeowner (or no longer home owner perhaps!)
I have been writing on this forum for some time that mortgage and equity release misselling is the best big scandal waiting in the wings. I cannot understand why some of the people who were sold 125% mortgages in 2006 and 2007 and now are hopelessly under water are not taking out class action suits against the lenders. But anyone who thinks it is sensible for lenders to start providing 90% mortgages should ponder this type of article. US prices are down 50% in many areas.
Now who is speaking tosh! House prices do only ever go up, look at the last hundred years, house prices higher each decade, yes, THANKYOU!
The problems we have are temporary; the banks just need to go back to 95% or better yet 100% or even better 120% mortgagees and our economy is saved. The other problem is the media scaring people half to death with constant gloom stories.
Young people need to stop being such dreadful whiners. Just load yourself up with as much debt as you can get, and buy a small flat in a rubbish area, then eventually, one day you will have half decent house in an OK area and your probably pay the debt off before you retire, when you then sell the house for many times what you bought it for and buy a bungalow. Worked for me, millions of others, just get over yourselves. More debt , higher house prices please Mr Osborne.
kendo: look... buying and selling property is not as dangerous as crossing a road, yet you do not see twenty-four thousand warnings plastered all over - do you?
Moreover, the statistics for the possibility of dying as a result of crossing a road should be FAR more important than losing a few large on what is a gamble with your own money - but they never make the headlines. WHY? Because there are MILLIONS of successful road crossings for every sprained ankle caused by stepping in a pothole, never mind injury or worse.
NO-ONE here is pushing up prices. I don't know which lines you are reading between to come to this conclusion - but just because no-one is shouting "cut... slash... reduce...." doesn't mean what you seem to believe.
It is a WARNING. How can it be tosh?
Property is just as likely to go Down as UP. Seems like common sense caution to me. Stop posting only your hope and wishes for eternal House price inflation as if it is written in stone.
I am not sure why people criticise EAT for posting these sorts of stories. They are the only ones that get people talking. An EAT story that does not mention house price rises/falls gets about 2 comments if it’s lucky.
Gloria: wardy may not have been referring specifically to the percentage claim as "tosh" - but tosh it is!
Putting a %age figure on future house price inflation is as effective as attempting to sew a button onto flatulence (amended to avoid censure... ;o) ).
ANYONE who claims they can do so is a liar or a fool.
What happened to "...the value of property can rise OR fall"?
Pretty much does what it says on the tin...
I am behind the times, Equity release schemes were considered a scam back in the 80's.
What a pity they don't bother to tell the folk that should they need to go into a care home it is not possible to sell the property without paying back the compound interest that has accrued.
Equity release is the most expensive form of borrowing there is, ignore the interest rate and view this scheme as an early sale of an asset at a forced sale valuation. Anyone considering Equity release would be better off selling their soul to Lucifer.
Never mind what house price do or don't do anyone taking equity release is already well and truly stuffed.
EAT..... are you struggling to find things to publish? This is another article from some group or other making a comment that there could be a double dip, or there might not be. This is a non article with a sensationalist headline.
His initial point is valid and should be said - brokers selling on unrealistic future values to Senior Citizens is not acceptable.
He then ruins his point by throwing in numbers from the National Guesswork Committee.
Equity release is a difficult area as if the initial projections are off then there can be very expensive results for the family after death.
The figures used to calculate should be a mean average - for example take out the top and bottom figures for 5 years each side and taking the average of the rest to give a better projection.
Hello Gloria.
What I ment by 'utter tosh' was mostly the article itself.
A worse case scenario in one paragraph talking about a double dip and a 2.5% increase in 2012 in the next. A paragraph saying 'we don’t know' would have been more welcoming.
For the record I don’t believe house prices are going up for the foreseeable nor want them to. Barking up the wrong tree there Gloria.
Wardy, are you talking about the 4% growth being utter tosh? If so why is this any different from the 9% some of the advisors use?
Do you believe that house prices will rise each year forever? If so how?
And cue the HPCers
Who are Bridgewater Equity Release anyway - are they a big player in this market?
so in other words, he licked his finger, stuck it in the air and then wrote down a few percentages. Utter tosh.
The trouble is people are generally quite resistant to learning anything new after their teens where they already have a formed view. Most people have seen house prices rise over their lifetime and refuse to accept that it might change. Regardless of the levels of debt being at unsustainable levels already. They simply cry for even more debt.
Come on EAT, give it a rest with the cruddy press releases from Equity Release firms that have no idea about ground level house sales. Lets have some positive news from people who know their stuff please!