House price crash is real possibility

Landlord Expert
By Landlord Expert October 25, 2010 17:51

More reports have been published pointing to a UK house price crisis. Recently figures showed the lowest mortgage approval rate for ten years whilst both the Halifax and Nationwide have released data showing a drop in house prices.

Ernst & Young have been quoted in saying: “The housing market clearly looks as if it is heading for a double dip.”. As fears grow, the market is preparing itself for a rocky ride in the coming months. The issue seems to be that post credit crunch, UK house prices don’t seem to be sustainable anymore. In the past easy access to cheap sub prime credit has over inflated prices. Now its more difficult to access mortgages, buyers aren’t able to push prices up to such a level.

The Bank of England has gone on record to say that: “weaker potential purchaser confidence – both in the macroeconomic outlook and the likely path of house prices – had started to weigh on demand.” This may well mean that the UK seems further falls and in some regions those could be dramatic.

Some are talking a positive view of the current situation. Many market experts believe that the doom and gloom reports are over reactions and that the UK market wont dip that far. One of the main barometers to this is the very low UK repossession rates. The figures are well below what were expected especially when compared to the US market.

Ray Boulger a mortgage broker John Charcol said: “I think the repossession figures are going to continue to be low,”, “I think all the indications are that the number is going to be below 40,000 this year. When you look at where we are in terms of the recession that’s a good number to be at – though clearly any number is too high. If you compare it with what happened in the early 90s, repossessions are comfortingly low.”

The catalyst for the price crash concerns was probably the Halifax figures which showed over a three and a half percent reduction in the past month which was the biggest drop in one single month since 1983. Since then there has been almost daily reports all pointing to what could amount to a price crash within the UK housing market. One such report suggested that prices were dropping by up to £200 per day in the worst hit areas.

David Hollingworth, a mortgage broker at London & Country said: “The market’s not going to drop off a cliff. Just because Halifax says it’s down 3.6% doesn’t mean it is going to stay that low. If you look at different indices they tell you different things. If you look at Nationwide and Halifax they tend to have reasonable variation from one month to the next.”

The dip in figures is being widely attributed to the lack of available mortgages to first time buyers. Since the credit crisis, first time buyers have found it hard to get deals as they are looking to borrow 80-90 percent of the value of a property. The best deals require much larger deposits of up to 60% which effectively prices many out of the market.

Mr Boulger backed this up by saying: “First time buyers borrowed, on average, about 90% [loan-to-value, or LTV] before the credit crunch,”, “Generally, you could borrow 90% as easily as if you were borrowing 50% at that time. That has changed. Quite a lot of lenders aren’t lending to that extent any more. And of those that are, they’re charging a much higher price.”

Landlord Expert
By Landlord Expert October 25, 2010 17:51

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