House prices have been rising steadily for some time, and this situation has been fuelled by low interest rates. Danger signals should be seen by those buyers who have invested too heavily and who could face problems (and even repossession) if there is a rates ‘correction’.

Sales and prices do not, on the surface, show any signs of falling back, but rising unemployment and the resulting fall in demand could be a marker to future trends. If interest rates increase, anyone who has borrowed to the limit may find that repayments become a millstone. At the same time a negative equity situation, where the value of the house is exceeded by the size of the debt, would dictate against downsizing as a way out of the problem.

House prices are increasing at a very steady rate as demand provides a very profitable market for developers and estate agents. Homes priced well above the average are at the centre of the increases, but they are tending to pull other property prices along with them.

This is creating greater difficulties for first time buyers, which has resulted in relatively stable prices for starter homes in some areas. There is then an effect higher up the chain where those wanting to ‘move up’ the ladder have difficulty in selling their property.

Despite forecasts by economics consultants Capital Economics of prices dropping by 5% in 2006, there is no sign of this as yet. This forecast may however be the graffiti on the wall, to be ignored at your peril.

Although prices have continued to surge forward in most areas, with the Halifax Building Society predicting prices three times higher than forecast for 2006, some voices are urging caution.

Mortgage rate rises of around 0.25% are forecast by The Council of Mortgage Lenders for the immediate future, although things could improve in a couple of years. It is though an unwise man who puts too much credence in long term forecasts, especially in a situation with so many variants able to have an effect.

Short term forecasts are by their very nature a little more reliable but may still require a moderate pinch of salt. Economist Jim Cunningham of CML is expecting a continuing vigorous house market, but adds the rider that interest rates will have a considerable bearing on the outcome. Taking into account the above mentioned potential mortgage rate increase, house sales could continue to increase, but much more modestly than recently.

With gloomy forecasts like this being broadcast, it follows that lenders are viewing their operations more carefully, and are likely to be rather more cautious about the size of loan which they will consider.

Another interesting factor is the introduction of home improvement packs, which will add cost and possibly delays for sellers, and could result in a ‘blip’ in the market if the number of houses available should fall as a result. As was mentioned above, there are many variants which can affect the market!

None of the above should be taken as suggesting that everyone should sit tight and wait for improving conditions. If you wish to go into the market with your house then do so, but in a slightly less relaxed manner than could have been the case last year. Large debts are a worry at any time, and an increase in interest rates could depress the market when buyers are faced with mortgages which are increasingly costly.

‘Bricks and mortar’ have always been a reasonably secure investment in the long term, but short term fluctuations can make life distinctly uncomfortable for investors. The Roman saying ‘Caveat emptor’ (let the buyer beware) shows that even in those far off days, Hadrian could have had problems financing his wall.

By: Michael Challiner

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The world of mortgages is packed full of choice for potential homeowners today. No longer do those searching for mortgages only have the choice of one or two products. Instead, there is a wealth or products available to suit every possible want and need going! Offset mortgages provide one of those options, and they also make it easier to manage your money on a broader scale too.

An individual can choose offset mortgages when he or she holds several products with one provider. All balances of current accounts, mortgages and savings accounts are held separately but are actually offset against each other, meaning that you get an overall balance. In simple terms, because the other account balance are offset against the mortgage, it means that an individual will pay less interest because the overall balance will be less than your actual mortgage balance. Offset mortgages are therefore proving popular because they are less expensive for those with significant savings than other mortgage accounts that are held separately.

Offset mortgages are also popular because you can actually underpay once in a while if you have an emergency. The other balances may mean that you can afford to underpay without accruing charges or interest as a result. You can also take payment holidays if you so wish, or overpay. The degree of flexibility allowed by offset mortgages is far better than with some other types of mortgage that are characterised by their rigidity.

However, the majority of offset mortgages are only available on a variable rate, meaning that the rates of interest that they have are determined by the Bank of England interest rates at the time. This is great if the interest rates are low, but if they happen to be as high as they are at the moment, then this can cause financial difficulties. Payments on offset mortgages are therefore not set in stone, which may prove to be a disadvantage for some!

By: Jason Hulott

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