Falling House Prices in the UK

by Mark Johnston

After a decade property market boom prices began to tumble in 2008 as banks began retreating from easy lending. House prices fall accelerated throughout 2008 and activity in the property market hit record lows in early 2009. Property price statistics for 2008-2009 painted a bleak picture, although they did not fully reflect the devastation wreaked so rapidly, this was due to the credit crunch.

There was a brief recovery in 2010 in the property market. However with the severe rationing of mortgages combined with an influx of would be sellers thus producing a surplus of sellers over buyers.

According to analysis by accountancy firm Price Waterhouse Cooper (PWC) the average United Kingdom house price is unlikely to return to its previous peak, adding there was only approximately a 50% chance prices would recover to their pre 2007 levels by the year 2020.

Land registry figures for England and Wales the average house prices have fallen by 12% or £21,232 since the peak in 2007. Communities and local department suggested that the annual home price fall was approximately 1.6% meaning the average UK home was worth around £203,528.

Nationwide building society figures suggest that the average house price rose to £168,731 more than January’s figures of £161,211 however there was only 204,000 property transactions recorded in the three months to June.

Many estate agents have reported a stand off between sellers and buyers, with sellers reluctant to lower the house price and buyers UN willing to pay over the odds. This is hardly surprising as buyers especially first time buyers now need deposits in the region of £60,000 and also need to earn more than 30% more than the average wage.

Mortgages are the key to the property market, without a mortgage the majority of buyers can not purchase a home. Price availability and restrictions imposed on mortgages have the biggest impact on buyer’s ability to purchase a home.

Banks fearful of huge losses have dramatically cut back on mortgage lending thus a vicious circle begins. Banks cut back on lending and raise deposits, fewer home buyers can secure finance, property prices fall and banks then in turn become more fearful and cut back further on lending.

Home buyers with a deposit would be amongst those to gain from the current situation, benefiting from relatively low mortgage interest rates while those with out a deposit would be potential losers.

Estate agents state that they are struggling to sell properties, unless sellers are willing to accept their expectations on prices need to be lowered. However estate agents are reluctant to turn down any new instruction and are still taking on all properties, some of these are remaining unsold until sellers start to cut their prices.

There are two factors that have stopped sales and prices falling more sharply. Firstly the Bank of England keeping interest rates as low as possible for as long as possible and secondly lower than expected rise in unemployment.

Expert commentators are divided about whether house prices will fall, rise or stabilise in the coming 12 months. Whatever happens to house prices in 2011 many analysis’s  believe that mortgage borrowing and complete sales will stay at very low levels.

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