Is The Uk Housing Market Going To Crash?

By: Gordon Marsden

About 20 years ago the UK housing market was booming, prices were rising much faster than inflation as people clamoured to invest in property and move from rental to home ownership. It appeared that buying property was akin to printing money, you just couldn't lose, or could you? As prices continued to increase the inexorable happened, properties became unaffordable as bank interest rates continued to rise. People had borrowed up to 5 times (and more) their annual income; they could no longer afford mortgage repayments as bank interest rates almost doubled in 2 years. The result? A huge increase in mortgage arrears and property repossessions.

The big question is will history repeat itself? A short answer to this question is very likely, unless the market changes its habits.

In 2003 the UK bank base rates reached a low point of 3.5%; at the start of 2007 the base rate was 5.25%, this represents a 50% increase in less than 4 years. Combined with increasing bank base rates people have also been borrowing on ever high multiples of their incomes, in some cases up to 7 times annual income. These higher borrowings make people even more vulnerable to further increases in bank base rates, so it doesn't take much thinking to realise that the UK property market is at the very least stretched, more likely it is stretched to a point where it could break.

Looking back on history 20 years ago then the UK will reach a comparable situation when bank base rates reach 6.5% to 7%. Already there are projections that base rates will increase to over 6% in 2008, if this happens there will be a huge increase in mortgage arrears, for many it will be too late to stop repossession of their homes. This is a very dire outlook, the best advice anyone can offer is do not over extend yourself when buying a property, ask the question "can I afford my mortgage if bank base rates increase to over 6%", if the answer is no, then don't buy.

Europe Properties
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Europe Properties