Why the property market is about to fall
The UK’s property market is beginning to see the signs of a downturn finally begin to show, setting the stage for a double dip in property values.
While the DCLG reports that property inflation over the past year has reached over 10%, this has been overwhelmingly driven by easy credit rather than a return to normal for the market. Standard mortgage rates are now typically 4% or lower, which beats even the low interest rates that prevalied at the height of the property boom across 2006-2008.
In simple terms: as the first signs of a market downturn came in, cash buyers and similar moved in to take advantage of lower high prices - not least because of the easy credit still available to them. With that market segment removed, there are no real buyers and prices can now only fall.
And then there’s the potential for increasing Captial Gains Tax forming an extra downward pressure on property prices, as RICS have warned of. To the credit of the commentators on the Telegraph’s piece, they recognise an unhealthy and bloated property market benefits nobody. High house prices are fine if you are cashing in, but most people will not be, which makes the values transient and irrelevant for existing home owners who wish to live in their property.
The scene is set very much for a fall again, with the CML reportedly announcing a fall in house buyers, with the result that while property inventories at estate agencies are growing, with fewer buyers left in the market (and first time buyers have long been priced out), then the only way the market can move is for prices to fall.
For once, few people are trumpeting a need for house prices to remain high, which can only be a positive thing. After all, we’re still on the downside of a property bubble, which remains harmful the longer it is left uncorrected, resulting in a general sense of gloom among the BSA.
However, no doubt some of the electorate will see a fall in house prices as a negative, unwelcome, event. Even still, I suspect for many people there will be relief, even if their own home values fall. A skewed and unrealistic market benefits nobody, and I suspect the majority of home owners in the UK are more than aware of that, and more than prepared for a fall in prices.
Personally, I suspect we’ll be looking at around 20% fall in value, which for most, should spare the pain of negative equity.
The main danger, really, is a rise in interest rates. Artificially low at present means mortgages can be relatively easily paid. Once they start rising to normal rates, that is when and where the pain will really set in.
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