UK Mortgage & Housing Market Set For Further Drops

by Mark Johnston

The start of 2011 has not been an improvement for the housing market or the UK mortgage market. Britain’s everywhere are starting to feel to full extent of the coalition governments spending cuts. Already experts are predicting a 20% drop in house prices over the next two years.

Housing analysts are expecting to see a large drop in the price of property in the UK. Although the double dip recession hasn’t hit yet, many are bracing themselves for a double dip house price fall which will wide billion of pounds off the value of homes in the UK. Spending cuts and a weak economy together with public sector job losses and pay freeze has put added pressure on the housing market.

Although we haven’t seen to market crash which was expected last year, we are seeing a slow and sustained fall in house prices which could have catastrophic effects. Every day the news reports highlights new government cuts which will result in the second house price dip.

Some experts have gone as far as to say that UK homes are well over values with some evening putting a 30% figure on their estimates. It is widely accepted that there will be a downward price adjustment during 2011 which should see prices drop to realistic levels. This may be great news for those looking to get onto the property market but existing home owners will be worried of either falling into negative equity or loosing so much equity that their home loan will cost more the next time they come to re-mortgage.

Any increase in interest rates would add speed to prices drops as buyers would be put off by the increased cost of borrowing. With no sight of lenders relaxing their criteria there is sure to be a lack of first time buyers which will further exacerbate the issue.

The Council of Mortgage Lenders (CML) have published a 13% fall in the amount of mortgages that have been agreed down from £10.6 billion in December 2010. Even though its an improvement of 5% when compared to the same time last year its still a pretty bad start to the new year.

Peter Charles, speaking on behalf of the Council of Mortgage Lenders said: “The availability of funding for mortgage lending should improve from current levels to support more normal levels of activity. However, the unprecedented expansion of wholesale funding, and hence mortgage lending, experienced in the mid 2000s is unlikely to return.”

With Swap rates increasing and the government removing support, lenders are set for a pretty hard time in the next few years. These factors are going to make it pretty difficult in raising new funds to be able to lend to customers. With limited funds banks and building societies will only look to provide finance to the less risky customers. This in turn will mean that first time buyers will be priced out of the market and their demand will drop even further which will put more pressure on the struggling house market.


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