Housing Market Slump

By: Andy Hygate

Good news for first time buyers says Andy Hygate from .

The recent credit difficulties are having a knock-on effect on the UK housing market, with Prices now stagnating and/or possibly falling.

Latest figures from the Halifax Price index state a fall in November by 1.1%, with mortgage approvals down by a massive 32% from the same time last year (Ref: HBOS house price index).

It seems that the increase in lending rates between banks (which are passed on to borrowers), the removal of products by many mortgage lenders and a fear of recession has led to a lack of confidence in the market.

However, Martin Ellis, Chief economist believes that the UK economy is in sound shape with an unprecedented 61 months of continued growth. He also states that a long-standing shortfall in housing coupled with a huge reservoir of potential first time buyers will sustain the market, preventing any significant falls.

Conversely, it could be argued that first time buyers are unable to make the initial step onto the ladder due to the substantial disparity between their earnings and the rising cost of mortgages. If this is so, and property speculators invest their capital elsewhere then a vacuum will occur at the foot of the market which could lead to a significant fall in prices.

The crash of 1989 caused property values to drop by 30% or more within just a few months. Today interest rates are far from the 15% they reached at the time (many analysts believe they will fall early next year) and the economy is in a much stronger position - but if a severe correction were to take place due to other factors, such as rising oil prices would it be such a bad thing?

Runaway house prices suit property investors with large portfolios and in the long run cannot be sustained. A significant fall coupled with an increase in low cost affordable property would open the way for new buyers to enter the market - refuelling it for the next upward movement.

As for now it may well pay First timers to hold their fire and see if the market softens further - there could be some worthwhile savings to be made over the next couple of years.

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