Is this the right time to buy property in Tenerife?
The world’s property market has changed dramatically over the past 18 months. Five years of soaring prices, followed by the credit crunch, global recession and an overall tightening of lending criteria, has caused average property values to fall.
Some parts of the globe have been savagely hit. A typical property in the UK is now around 15% cheaper than it was a year ago, points out a top economist, although the rate at which values are falling does appear to be slowing down.
So does this mean the market has bottomed out? We expect prices to continue falling in some areas into 2010 because of the awful outlook for the economy in the UK. We believe that factors such as the sharp rise of the number of people who are unemployed will have an impact, However, other economistsists disagree, believing that now is the time to take the plunge back into property, especially in areas such as Tenerife, citing the increase in both the number of people searching for a mortgage and the variety of products available. They state that failing a massive dollop of bad news in the near future, we’ve hit the bottom of the market. The reductions in interest rates are having an effect, and people are realising that it’s cheaper for them to buy than rent.
The simple fact is that no-one knows for sure if the bottom has been reached, but this shouldn’t be the deciding factor in whether you should buy a property or not.
If you find a property and you are happy with the price, then buying now could be a good move. Of course, the value may fall a little now, but over the longer term, it is likely to increase again – and your deposit should act as a buffer against negative equity. However, millions of people are still playing a waiting game to try and time their entry into the property market. First Direct estimates that these people are sitting on savings pots worth more than £20 billion.
So how do you know when it’s the right time to buy? It all comes down to your personal circumstances, so you need to ask yourself a few questions such as: what are your future plans; how much money have you managed to save; and whereabouts do you want to settle?
You need to weigh up all the pros and cons of such a move – regardless of whether you’re making your first foray into the property market or climbing up the ladder – because, unfortunately, nothing is black and white when it comes to property.
The advantages of buying now are that interest rates are extraordinarily low, which means mortgages are generally more affordable. In fact, affordability is better now than it has been for more than six years, according to UK lender Halifax. It’s also possible to drive a hard bargain as those needing to move are struggling to attract potential buyers these days.
There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the world over the past 18 months The significant reduction in property prices, relative to average earnings, has resulted largely from the decline in house prices since the autumn of 2007. Buyer interest is clearly gaining momentum, The market is still in a fragile state, but with demand picking up, there may be more signs of stabilisation in the coming months.
You also need to decide how long you intend to remain in an area. If it’s only for a short time, then we suggest that you rent instead. Consider whether there is a good chance of you needing to move within the next few years. If you’re happy to own the property for at least five years, then there will be a reasonable choice for you, and there are some great bargains available especially in Tenerife.
But one thing is pretty much guaranteed: property prices won’t be rising dramatically any time soon. The best and most realistic that you can hope for is that the value of your property will slowly increase for a while before starting to edge rapidly upwards. Any reputable estate agent will confirm this and try to assist you in your prospective purchase.
To take advantage of the current conditions, you need a larger deposit than in the past; access to a mortgage with repayments that won’t cripple you financially, even if interest rates rise; and relatively secure employment prospects.
The first step is to establish how much you can afford and then to look around for the best deals. The choice of mortgages narrowed dramatically when the credit crunch first took hold, but the situation has since improved slightly.
Although the days of 100% mortgages are long gone, there are still plenty of options for would-be buyers. The better rates, however, are reserved for those who need to borrow a smaller percentage of the selling price. The more money you can put down, the cheaper the deal. Ideally, buyers need a deposit of at least 15% deposit, while 25% makes a big difference in terms of the rates on offer. For those putting just 10% down the range of products is limited.
The conclusions you should draw is that you’ll only know whether you bought at the right time with the benefit of hindsight, but if you can afford it, then it could well make long-term financial sense. Once the mortgage is cleared, the cost of living in a home falls considerably, whereas if you rent the cost will continue – or even increase.
