Where next for UK house prices?

Canarius's picture

Not a day goes by nowadays where some hack with an axe to grind bemoans the
'sorry state' of the UK property market. Headlines warn of an impending crash,
whilst weekend supplements advise homeowners of how to sell in a falling
market. Now I'm more inclined to read between the lines and try and make my own
mind up, rather than follow the sheep and prepare myself for armageddon.

Sure, house prices have been soaring at an astronomical rate over the past
few years. Back in 2000, average house prices according to the Halifax stood at
roughly £85,000 in 2000, now they stand at nearly £200,000.

So why has it happened?

In a nutshell, mortgage lenders have fallen over themselves to lend bigger,
at lower rates and to virtually anyone who wants a mortgage, no matter how bad
their credit report is (Northern Rock, anyone?). Add to the fact that we live
in an island with a shortage of available property, where buy-to-let landlords
have been snapping up two-bedroomed properties at a rate of knots, taking them
out of the hands of prospective first time buyers, and you’ve got a formula
that goes a long way in explaining why house prices are so high.

I bought my house with my best friend in April 2006 for £140,000, taking out
a two-year fixed at 4.95%. I’ve been monitoring my local market with great
interest, and saw the value of my home touch £160,000 last summer. Now however,
(after having it valued officially as my friend wants to sell up), it was
valued at £150,000, or £145,000 for a ‘quick’ sale. That’s still a tidy profit,
but when you take into account estate agent’s fees, solicitor’s fees, the cost
of a HIP (eeugh), and the mortgage exit fee, and we’re pretty much back to
where we started.

There is no doubt that the market has changed, but I seriously don’t think
house prices are heading for a crash. Mortgage lenders still offer 100%
mortgages, sub prime mortgages are still on the shelf, albeit at a lower amount
than they were before the credit crunch bit, and the prime residential mortgage
market continues virtually unaffected, with only a handful of lenders tweaking
their loan-to-values.

Historically, interest rates are very low. In the dark days of the 1990s
when the property market really did crash, interest rates were 15% and there
was an oversupply of housing. Now however, the opposite is true. The Bank of
England looks set to make another 0.25% cut to 5.25% next month, with many
economists expecting interest rates to fall to 5% by the summer. Not only could
this prevent the property market from falling further, it could renew optimism
in the market. Demand continues to outstrip supply, and there is a real
shortage of housing – whilst immigration continues to increase.

Perhaps I’m being too optimistic, crossing my fingers
and hoping for the best as I’m one of the lucky 20-somethings that has managed
to get on the first rung of the ladder, but if house prices were to crash it
would take something bigger than the Northern Rock crisis to do it….We’ll just
have to wait and see.

Your Comments

here here to Canarius blog - sometimes you can listen to all the doom and gloom thats out there. my issue is with the fact that no one knows whats going to happen but everyone thinks there are an expert. Plus, there seems to be a lot of scaremongering going on with the press, anyone would think Armageddon is approaching!
One point though - there was some stuff in the weekend press about the value of the housing stock in England (or maybe it was UK, cant remember) - is it just me or does this mean nothing? The amount of the property stock owned outright outnumbering the amount owned by banks and lenders is simply because of house price growth. If prices were to fall then this would change, in banks favour!
I vote we stop worrying about house prices and home owners just celebrate that they have somewhere to live - that's the point isn't it? Or maybe some landlords out there wouldn't agree?

Apologies for how that blog appeared, something seems to have happened in the formatting?? Anyway, what I think most people seem to forget is that if their house does crash in value, so does everyone elses! Sure you'll still be hit with your mortgage repayment (which you should be able to afford anyway), but everyone else will be in the same situation. The only ones to benefit will be first time buyers. And how old are most of those journo's? 20 something. Perhaps they have more to gain by creating this doom and gloom? Just a thought!!!

HI, as a 20-something journalist and a recent first-time buyer mortgaged up to my eyeballs I thought I should add my two-pence worth to this discussion. The problem for me is that one of the reasons I bought (other than to have somewhere to live) was to move up the ladder. I've only been able to afford a cheap flat in a 'blah' area and had to take out a high LTV mortgage in order to afford it. Which I'm comfortable with, but eventually I would like to sell up and be able to walk away with a bit of profit that I can use to buy somewhere a bit more central. If prices remain flat my ability to do that does decrease, even if prices are flat elsewhere.
The good news is that unless I am forced to move in the next few years (marriage, divorce, unemployment being the most likely reasons for this) then I don't need to worry about the value of my home too much. At the end of the day even if I walk away with no profit then I've had the privilege of owning my own home for a few years at least and having been handing all my money over to a landlord to pay off his mortgage.
And regarding buy--to-let landlords - hopefully most of them are in it for the long-run and won't jump ship as prices start to fall... if they do then everyone really is in trouble....

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