Well, I don’t want to say I told you so, but I did. I can’t say I feel smug about that as it will be bad news for nearly all of us but it was inevitable. Regular readers of this blog will know I have been talking about house prices falling for some time and the figures are really building up to support that view.

The Halifax has released results suggesting that house prices in the UK fell by 1.1% last month. There had been previous suggestions that houde prices were slowing their rise but this figure for November 2007 pushes the three monthly average into a minus figure for the first time since 1996. This follows on from news that mortgage applications have collapsed to a three year low. Perhaps collapsed is not the right word but compared with recent years it is a very significant drop. The Halifax reports that it’s mortgage approvals in October were down 31% compared to October 2006. It may be a lot more people were going elsewhere for mortgages but the Halifax is the UK’s largest lender and these figures are further evidence that the buyers are fading away.

The problems caused by the credit crunch are making mortgages harder to get and those that are available are more expensive than they had been in the past. This makes it far harder for first time buyers to get on the mortage/housing ladder which in turn reduces the demand for property which then means that anyone wanting to sell to first timers has to reduce their price to attract the buyers. It has become a buyers market and the buyers hold the trump cards. They can walk away and find plenty of other properties.

The buy to let market has dropped off because the sums don’t add up so well now. Previously you could reckon on buying a property and letting it out. The rental income would cover the mortgage and you would get capital growth in the value of the property. This is no longer true. The interest on a Buy To Let mortgage is now likely to be highr than the rental income and, at the moment, there is a minus figure for capital growth.

When you also add to this scenario the huge personal debt that many people have built up over recent years on credit cards, personal loans and remortgages that are mostly requiring larger repayments because of interest rate rises we have a population that sees the value of their property diminishing while their repayments are increasing. Many people will be able to ignore this and carry on regardless but many will not. Those who have seen every house price rise as an opportunity to raise another remortgage to buy new cars, designer handbags or yet another giant tv will start to wonder how they can pay for all this and still maintain their lifestyles.

All this pressure on house prices will continue to build until house prices return to a realistic figure that relates the cost of houses with the cost of money and the average persons income. They have to get back to a more realistic position unless the credit industry or even the government come up with some imaginitive way to lend people more money that they will somehow be able to afford to repay over time. It is always a possibility that the government will try to do this. Rising house prices generally make for happy voters. Falling house prices have the reverse effect.

The bank rate setting committee is meeting as I write this. It will be interesting to see how they respond. It would seem likely that nervous of a collapse in consumer spending they will reduce the Bank Rate tomorrow.

Watch this space but keep your credit card under control.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

Related posts:

  1. Recession Expected And House Prices Expected To Fall
  2. The Value Of A House Must Find Its Own Level
  3. Buy A House And Never Own It
  4. House Prices To Drop In 2008?
  5. One Percent House Price Drop In June

Filed under: Mortgages • Property Prices

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