House Prices Fall – Winners and Losers

by Mark Johnston

House prices in the UK are set to continue to fall in 2011 as a range of economic factors hit home owners hard. The imminent rise in VAT, government spending cuts and unstable mortgage market will all end up taking their toll on the hard hit British housing market.

Some sources are saying that up to 90% of leading economists in the UK are predicting further house price falls. Worse news is that many are expecting falls between 5 and 10% which could wipe up to £15,000 off the value of the average priced home.

Andrew Goodwin, of Oxford Economics, said: “Last year’s supply shortage has been corrected, which has taken away the major support to prices, but while the market fundamentals remain weak, they are more favourable than they were in the house price crash of 2008.”

Even home owners who are not looking to sell their homes will start to feel the painful pinch of house prices declines as lower valuations mean lower equity. In the current climate, lenders are looking for large amounts of equity to offer borrowers and re-mortgages the best possible deals on their mortgages. Borrowers who had 40% equity in their home might now only have 30 or even 20% resulting in a much higher rate of chargeable interest when they come to re-mortgage.

Those looking to get onto the housing market in 2011 are the ones most likely to benefit from the fall in prices making it easy for them to buy the house of their dreams. The problem is that even though prices are coming down, banks and building societies aren’t agreeing many first time buyer mortgages so finding finance is difficult.

In the last three years first time buyer mortgages have fallen and almost a million potential buyers have been left out in the cold unable to get a mortgage due to the increased demands lenders are putting on new buyers.

Experts are now worried about home owners rather than prospective buyers as they are finding it difficult to re-mortgage their homes. Those with limited equity in their homes are not able to agree new fixed term mortgages which is effectively freezing them out of the UK market. Recently the Bank of England raised their concerns that too many households are being left open to a rise in interest rates.

The bank warned earlier this month: “Given current levels of debt, UK banks might face higher defaults if interest rates were to rise rapidly from current levels,”

Other independent research by leading estate agent Savills suggested that those with property in the North were far harder hit than  those in the south. Unsurprisingly, London and the south east of England were least effected with some areas showing a positive recovery.

Experts predict that London will continue to perform well even though the rest of the UK is struggling. Analysts believe that those three bedroom semi detached houses in the North of England will suffer the worst falls.

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