A House Market Downturn?

All the latest figures point to a fall in the housing market, with approval rates for mortgages down by thirty percent from the same period last year.

It appears that lending rate increases between banks, the exclusion of a range of bad credit loan products by several mortgage lenders and the fear of a recession have led to a shortage of confidence in the housing market.

Nonetheless, economists are of the opinion that the economy in the UK is in good shape with unparalleled continued growth for the last five years. They also state that a shortage of housing together with a large pool of prospective first time house buyers should help sustain the market, helping to prevent any major falls.

On the other hand, it may be argued that young first time house buyers are not able to take the first step onto the property ladder because of the sizeable differences between their income and the spiralling cost of mortgages. If this carries on, eventually property speculators will invest their funds elsewhere, creating a vacuum at the bottom of the market, in turn leading to a major fall in house prices.

When there was a crash in 1989, property values fell by more than thirty percent in just a few short months. Even though today’s interest rates are nowhere near the fifteen percent they reached during that crash, and the economy appears in a much healthier position, if a major correction was needed due to other circumstances, rising oil prices for example, would that be considered such a bad thing?

Soaring prices of homes for sale benefit property investors with hefty portfolios but in the long run couldn’t be sustained. A major fall together with a rise in inexpensive property would unlock the door for potential new buyers to come into the market - preparing it for the subsequent upward movement. For the time being, it could pay first time house buyers to hold off for a little while to see if the market further softens - there may be some valuable savings to be made during the next two or three years.

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