Property Know

A rocky road ahead, like most of us predicted the housing market is slowing down, the property craze seems to have run its course and the bubble is about to burst. For many of us we have witnessed a turn in the economy. With the current economic situation in terms of the credit crunch it is affecting mortgage lenders there is no question about that.  The credit crunch in the US has had a huge effect in the UK, there have been stricter controls to whom banks lend to, there has been a steep drop in mortgage lending, with less than 3000 products offered to consumers today compared to May 2007 in which there were as much as 11,000 products. This has made it increasingly difficult for first time buyers to get on the property ladder as they will have to save a lot more for deposits or wait till they get a better paying job but waiting for that could be too late. As more of us are watching our spending carefully, there seems to be fewer buyers out there and this will eventually cause an excessive supply of homes with a lack of demand, which could result in the price of properties continuing to fall dramatically.

Another blow to our pockets is the intensity of the cost of living, noticeably the price hikes in everyday essentials such as petrol and food, with this in mind many of us are holding back, that means stepping away from the property market, keeping every penny in our pockets and being extremely conservative with our spending. It looks set that the UK is about to follow suit of the Americans and possibly head towards a recession.

Although the government has tried to stimulate spending within the economy by cutting interest rates to 5%, this may not necessarily improve the situation within the property market for home owners. Reduced interest rates as well as declining house prices, has not boosted spending or maintained property value which has had a knock on effect on the wealth effect in which people perceive themselves to be richer but in this case are worse off, in which case the wealth effect is playing in the opposite direction of the fall in house prices. An example of this is when, with a £100k mortgage and a drop of 0.25% in interest rates would lead to fall in monthly payments of £21. On the other hand a drop in house prices of 0.25% a month would lead to a loss of equity of roughly £250 on a £100,000 property. The home owner ends up paying £21 less then usual a month but the house price drops makes the interest rate cut redundant making the home owner lose equity in the long run.

With the current economic state, getting a mortgage has become incredibly difficult as lenders have become quite demanding to who they will offer mortgages to and when they do offer them, the rate will not be cheap. Despite this, its not all bad news, as property prices seem to be unstable, more people are turning to renting, this new trend has increased rental prices for landlords and seen the sales of buy to let market rise in the past few months.