John Donohue, a Manchester-based entrepreneur, first thought of
selling his Georgian-style house in Altrincham last June. The market was
rising and his neighbour had just sold his equally large home for £1.96m.
He put his six-bedroom house on the market for slightly less, £1.95m. It is
still on the books of Jackson-Stops & Staff, his agents. It has
attracted three viewings in nine months and has seen its price slashed to
£1.85m, and last month to £1.725m.
“The market just seems to get worse,” he lamented. “When I first contacted an
agent he said he could sell 10 of them on the estate, they were that easy to
sell. Everything seemed to conspire against us. The credit crunch and
financial wobbles seem to be affecting the higher end of the market as much
as anywhere.”
Many other potential sellers may be feeling the same way this weekend.
Property “porn”, the British obsession with house prices, has suddenly
turned into a video nasty.
Late last month the Nationwide building society reported a fifth successive
month of falling house prices, the first time that had happened since the
early 1990s.
One London estate agency, Douglas & Gordon, is retraining staff in how to
sell in a downturn. Another, Savills, says 50% of properties at its Fulham
office have had a price cut. A five-bedroom home valued at £2.15m three
weeks ago is down to £1.95m.
For some people the falls mean actual losses, not just smaller gains than they
might have expected. Janie Dix, from Manchester, was lured into the
buy-to-let market and bought two apartments in Leeds three years ago for
£300,000. When the rent failed to cover her borrowings, she had to sell.
Last month the flats went for just £250,000. “I keep asking myself, ‘How could
I have been such a moron?’,” she said.
Lenders, fearing losses themselves, are tightening terms or withdrawing
altogether. Last week First Direct, part of HSBC, announced that it was
closing its doors to new mortgage applicants, having been inundated with
applications for its competitive deals. Others followed, either pulling
mortgage deals or raising interest rates because, thanks to the global
credit crunch, they no longer have easy access to funds.
Some 20%-30% of house purchases are falling through because of the problems of
obtaining finance, up from a norm of 10% to 20%.
The doom and gloom appears all-enveloping. Prices are falling in many areas
and even those who want to buy cannot get a mortgage. It looks like a
perfect storm - but is this really the start of the long-feared housing
crash?
THE folk memory of falling house prices in Britain was established in the
great housing recession of the early 1990s.
Its seeds were sown when Nigel Lawson, chancellor of the exchequer under
Margaret Thatcher, unveiled his Budget of 1988. It cut taxes, but also the
amount of tax relief allowed on mortgages (which was later scrapped
altogether).
The government made a fatal mistake by announcing a five-month delay before
the tax relief cut came into effect. The result was a mad scramble to take
advantage of the relief while it lasted.
That scramble, together with the tax cuts and low interest rates (for the
time), gave Britain a housing boom of Klondike proportions. Prices
nationally rose by 34% over the course of 1988. In parts of the southeast
they jumped by 50%.
It could not last. When interest rates rose sharply, the effect was
devastating. House prices fell by 20% in the following three years,
according to the Nationwide, and 12%-13% on the Halifax and government
measures. By 1995, they had dropped 30% to 40% in “real”, or
inflation-adjusted, terms.
Over the 1990-95 period 345,000 homes were repossessed and at least 2m
households fell into negative equity, where the value of their property was
worth less than their mortgage. It took until the late 1990s before this
scourge came to an end.
Could history repeat itself? Nick Clegg, the Liberal Democrat leader, warns
that the housing market faces “an almost identical situation to that in the
1990s”. “The fact is we are on the cusp of what could be a housing crash,”
he said.
The International Monetary Fund said last week that UK house prices were
“overvalued” by about 30% and that Britain, along with Ireland, the
Netherlands and France, was “particularly vulnerable” to a further house
price correction.
It sounds desperate, but predictions of an imminent crash have been proved
wrong on many occasions in recent years. It is worth remembering that five
years ago the IMF also said Britain’s house prices were 30% overvalued – and
they proceeded to soar.
There is an element of psychology at work: with gloom about the market
all-pervasive, every weak morsel of information is seized upon.
The Land Registry, for example, reported last week that prices were flat in
February and had fallen 0.4% in London. It prompted headlines of “slump” in
the newspapers.
Yet London prices are still 10.6% up on a year ago and less than a quarter of
boroughs reported falls in the latest month. Some, including Harrow and
Hackney, saw rises of 1% or more.
The Land Registry figures also showed that while many regions experienced
small declines in house prices in February, and Wales suffered a 1.1% fall,
prices rose in Yorkshire and the Humber, and the East and West Midlands.
Property analysts also say that any national fall has to be put into
perspective. Even a 20% drop would only take prices back to their 2004
level.
Though Martin Ellis, chief economist of HBOS, which owns the Halifax, does not
deny times are tough, he is adamant the conditions do not exist for a crash.
“Confidence has a role to play but what matters in the housing market are job
prospects and job security,” he said. “The demand for mortgages is still
strong. Some of the numbers you see around are exaggerated, particularly in
relation to the payments shock.”
That shock, caused by some lenders raising rates and borrowers coming off
fixed-rate loans to face higher repayments, may not be as bad as feared. At
present the average rate increase homebuyers face is only one percentage
point. It will be unpleasant for many, but not unbearable.
Economists at Barclays, who have replicated the IMF’s analysis but with their
own assumptions and calculations, agree that house prices will slip this
year but only modestly, by 2%. Treasury officials also dismiss comparisons
with the 1990s.
“People are facing higher mortgage rates but it is not remotely on the scale
of the early 1990s,” said a senior Treasury official. “And the really big
difference is in the labour market.”
Official figures show that employment is at a record 29.5m and unemployment at
its lowest since the mid1970s. HOWEVER, there is one big uncertainty in all
these analyses: the credit crunch. How long it will last and how tough it
will be is hard to predict.
At least half of mortgage products have disappeared from the market since last
summer, with more being removed by the day because of the crunch. The Bank
of England reported last week that more than 40% of lenders plan to reduce
the amount of lending they do.
The Council of Mortgage Lenders reckons there will be a £30 billion shortfall
in mortgage funding this year; if so, housebuying activity will dry up and
prices drop further.
“Everything hinges on the state of the mortgage market,” said Liam Bailey,
director of residential research at estate agents Knight Frank.
“The realities of the mortgage market are beginning to bite and if nothing
changes we could see falls of 5%, and in the worst hit areas by as much as
10%. The speed of the change is quite concerning.”
Worst affected are first-time buyers. Some have been waiting for prices to
come down so they can get on the housing ladder – only to find that now
prices are slipping they cannot get a mortgage.
Rob Williams, a public affairs worker in his late thirties (now not an
untypical age for a first-time buyer), is one of those finding himself
trapped. For the past couple of years, Williams, who rents a room in a
shared house in north London, has worked at two jobs to save a deposit of
£25,000. However, with lenders setting tougher deposit terms, it is now
unlikely to be enough to get him on the property ladder.
“Saving anything while living in London is a challenge,” he says, “but buying
is an even greater one.” He has given up the struggle for now. Tired from
endless searches for anything in his price bracket – £180,000 – in north
London, he is watching what happens. “I’m going to stay out of the market
until prices come back down,” he said. “That or possibly move to France.”
He is not alone, and this could have effects on the wider market. “The
first-time buyer has become an endangered species over the last decade,”
said Drew Wotherspoon of John Charcol, one of the country’s largest mortgage
brokers.
“No new entrants means no one to buy second properties and these ramifications
continue up the ladder. The longer this continues, the more problems we are
storing up.”
Though he is right, it’s important to remember that buy-to-let landlords are
also a strong influence. In recent years they have filled the housing gap
left by first-time buyers. Capital gains tax changes coming into effect
today, introducing a uniform 18% rate, have prompted fears that a flood of
buy-to-let properties may hit the market as owners cash in their capital
gains. It could further drive down prices.
This is dismissed by the industry body, the Association of Residential Letting
Agents (Arla). Its latest survey of members shows that while 18% of
landlords plan to sell some or all of their properties in the coming year,
46% say they intend to add to their portfolios.
Nine in 10 landlords say they would not sell even if house prices fell. Arla
claims landlords are benefiting from a strong rise in rentals on their
buy-to-let properties.
There are other rays of hope, too. The Blackheath office of estate agents
Kinleigh Folkard and Hayward in south London reports constant demand across
all their offices in London and the southeast for family period properties.
Homes under £350,000 are even attracting sealed bids, such is the
competition.
“The mantra location, location, location is key,” said Fiona Smith, the sales
manager. “Well-presented properties, close to public transport and away from
busy roads are holding their value and still selling within two to three
weeks.”
Richard Donnell, research director at Hometrack, is sticking to his prediction
of a 1% rise in house prices this year.
“I just don’t think it’s as bad as everybody says it is going to be,” he said.
“We’re coming off a very strong base and the demand is there.
“There’ll be some weakness, particularly for new-build city flats, but
bread-and-butter family house prices are essentially going to be flat.”
If he’s right, Acacia Avenue will breathe a sigh of relief. If he’s wrong, a
new generation will discover that property boom can indeed turn to bust.
Credit crunch Q&A
Over a 40 year period house prices have increased at least 10% a year; salary increases have been nothing like that. The recent increases were fuelled by overexuberant lending, which has now stopped. The benchmark now is one's salary, so what kind of person can buy a 1.75 million pound house?
Phil, Bishop's Stortford,
Interesting to read about the Altrincham house price "problem". Unfortunately asking prices have been over-hyped here for several years. The house in question was bought, presumably by the Donohues, at the end of November2005 for £1.315m. The two main national house price indices would suggest that a house of that price in the North West might be valued at between £1.4 and £1.475m today. There's the problem - £1.725m is still way over a sensible guide price. Just because someone paid over the odds for a neighbouring house in October 2006 doesn't mean they are all worth that much now. By asking £1.95m in June 2007, they were trying to profit by almost 50% in 18 months. This article really just goes to prove that house prices aren't really "falling" - its just that unrealistic asking prices aren't being met any longer. If the asking price came down to say £1.45m then perhaps there might be more viewings. As a buying agent, I look forward to more price realism in the coming months.
Phil Martin, Altrincham, UK
The next few weeks will be crucial for the property market. If investors are holding on and not putting their properties on the market, then the availability of credit will determine whether or not the market declines further.
if investors start selling up in large numbers, however, things could turn ugly pretty quickly.
On another note, the fact that many people seem to be struggling with their repayments and using credit cards to fund their day to day living costs, is not a good sign.
Personally, I don't believe it's the time to buy. Not as long as you can rent a far better home for less money which is still the case!
Peter Vuorela, London,
If you want to know what is coming our way look west to America. The average American house costs half of what the average UK house costs but is also twice the size - this tells us how big the UK bubble is. In the US prices are falling despite rates being slashed to just 2% - cutting rates in the UK will make no difference this time. In the US prices started falling long before unemployment started picking up and before anyone even mentioned the R word. It is the bursting of the housing buibble that causes recessions and not the other way around. We are in awful mess - thanks Brown.
Robert, Hythe, Kent
Inflation and the decline of the pound will cause house values to fall. Looking at the value of your house in pounds is looking through rose tinted glasses.
In Euro terms the price decrease of english property is accelarating.
mark, Leicester, UK
Thanks to the serial buy-to-let brigade, greedy estate agents, immigration, cheap labour, financial organisations throwing credit at people like confetty, no wonder things are looking gloomy. There are many people who have just become plain greedy and have suffocated people like me (would be first time buyers) who can't even afford a small flat. Low salaries doesn't help and the increasing rise of cost of living is making this totally impossible. Prices need to come down around 40% and you probably get a more realistic valuation for a property in today's climate instead of the over inflated prices at present. Some people are just not content with one home and see property as easy money but the housing market needs first time buyers and now we are priced out of the market we have the present situation. This is Rip-off Britain after all, and I don't hold any hope for the future as we are a nation lead by liars at Westminster who clearly have no idea what struggling families now face.
Paul, West Mids,
I can't understand why people want house prices to rise - why would you want to pay more for something !!
The only reason is to borrow on the equity but we all know that borrowing money makes you skint !!
The only ones who gain are the banks - and greedy people with more than one house and those downsizing, everyone else loses. 2nd homes should be taxed high and private landlords are a dickensian abhorance.
john, manchester,
HOUSE PRICES UK, 25% OV
When I bought my first BTL in 99, i paid £68 000, rental PCM £800, this covered the mortgage at 6.5% + a liitle extra for insurance ongoing re-furb etc. Leaving me with a profit of £150 PCM, great, so I bought a second and third 2001,2002. I stopped then as the rental income only just covered expenses (note I paid a 25% deposit on properties no 2 ,3&4). Prop no 3, purchased for £130K. Rental covered, but with all the extra's I made a small profit about £90 per month pre-tax.
Today, property no1 would cost £250K, do the maths, even with a deposit of 20%, how does one profit except with the expectation of a capital gain.
On an interest only mortgage at 6% £200,000 is going to cost £1000 PCM. The rental on my original £68K property is still only £850-900 per month, do the maths!
I sold my last BTL March 2006, to early to maximise my profit,but I got out with a handsome profit,now waiting for about a year before I buy the home I could only dream of 8 years agO.
matthew, Leeds, west yorks
I agree with Chris,
But how did we ever get to this?
I walk down Acacia Avenue in Balham. The money the Estate Agents want for their clients' properties is £550000 for a two up two down railway workers cottage. Such average salary today? say £30000 + £12000 = £42000. So, basic arithmetic = a 10% deposit on £550000 = £55000. 2.25 times £42000 = £94,500 mortgage. Plus the £55000 = £149,500. Deficit = £400000. But then again I also know a spec builder who recently vacated the street last year at its height....
Errrrm yeeeeee eeeesssss as one Mr. Paxman would say.
Still, I never was really good at arithmetic. Mr. Applegarth , over to you to explain...
Alistairs Solicitors, Bristol , UK
Some time back I read that in parts of the UK, property prices were 9.5 times average wages. Excluding 'millionaires row' locations, how could this possibly have arisen? Overpricing and too much credit perhaps?
On a different note, I sometimes muse the whole of London could eventually become a 'gated community'. Only those earning above a considerable amount would be able to afford a home, and be allowed to settle!
G Roberts, Hereford, UK
Back in 1992 our until then easily let flat in Weybridge fell vacant. After six months of no tenants we were finally able to let the flat at half the previous rental. The rental only recovered to its previous level in 1996. In all it cost my wife and I thousands to keep the whole thing afloat. Luckily for us we could afford it - what about those buy to letters who can't? There will be blood on pavement by the time this has worked through.
Arnold Ward, Weybridge, Surrey, UK
This is going to get really nasty, and it is going to be prolonged.
Expect property prices to drop 40 - 60%.
No doubt, the people with vested interests will keep telling us that everything is rosy.
S Wright, Manchester,
This going to get really nasty, and it will be prolonged.
Expect property prices to drop by 40 - 60%.
No doubt, the people with vested interests will keep on telling us that everything is rosy.
S Wright, Manchester,
Dan, Windsor:
The interest / rental question is interesting in itself!
The rise in interest payments has (up to now) been self prophesising. I mean by this that higher house prices (and Buy to Let) has meant higher rents. What perhaps cannot be factored in by the economists is lower rent because of downward pressure through lower house prices, less housing benefit paid and (as exemplified after Cathy Come Home) far more security of tenure for tenants (this has happened before with the Rent Act 1977 and would only need a mildly left wing government to do it).
Also what many buy to let landlords don't know is that an assured shorthold tenancy is a minimum of 6 months and could be initially negotiated as more. These lets do allow the tenant to apply to have a reasonable market rent imposed. Desperate landlords might well enter a longer let to find tenants, only to find that their rent is then decrease by statute!
I don't think I would like to be a landlord at the moment.
Alistairs Solicitors, Bristol , UK
What amazes me is that this was all avoidable. If Prime Minister (Crash Gordon) Brown, Unelect hadn't (1) changed the inflation measure to CPI rather than RPI and (2) left all the indicators of true inflation (such as relating to the property price increases) out of it. The true rate would have been properly publicies well before and higher interest rates justified and imposed.... There would have been no asset bubble (even though some learned economists (even on this paper) refuse to exist that such exists....
Alistairs Solicitors, Bristol , UK
To Dan (Windsor)
I was using liability in the accounting sense of the word. Rent is payment in return for the right to occupy or use a property - it's not in itself a liability.
A liability is an obligation that legally binds an individual or a company to settle a debt. If you take out a 90% mortgage to buy a £200,000 flat in Leeds city centre, then you have a liability to the mortgagee (the bank) for £180,000.
As for thinking that renting is "throwing money down the drain" - this is part of the mindset which has got us into this situation. In Germany by comparison there's no social-economic stigma about renting, a minority of homes are owner-occupied, and unsurprisingly there they have a very flat/stable housing market.
Alex, London,
to Chris Cunningham
Trouble is Chris, this isn't like the '90's..... I work in the industry and we've never felt anything quite like this. In some ways it all looks benign and you could be lulled into the 'we've been here before' syndrome. But the trouble is we haven't been here before and we have several extremely brutal years to get through. There will be no return to normal - this 'is the NEW normal' someone recently said! Some will survive, the prudent, and some won't... Just wait for the lagging indicators ie. unemployment, huge changes and further job losses in the city and builders going bust and you do really have the perfect storm. Not doomsters, maybe soothsayers.
george, aylesbury,
After the cheap availability of credit in the last few years, we now find that the UK economy is running on nothing but "petrol fumes"
Jimmy, Liverpool, UK
Alex (London), how can you say that a would-be first-time buyer has no financial liabilities?
How about the "liability" of having to fork out half a month's wages every month to pay rent, knowing that you are as good as throwing your money down the drain?
Dan, Windsor,
There is a simple answer to the headline question, which is to let the market correct itself without throwing taxpayers money at it. Thus, no more bailing out of mortgage securities, no more nationalisations of bankrupt banks, no more currency devaluation, no more pumping the markets full of 'liquidity'.
Ensure that the FSA secures all savers' monies, otherwise such savings will leave the country tomorrow and the banks and building societies really will go bust. Bear in mind that much of these savings are from people waiting to purchase when house prices become affordable, which itself will ensure that house prices don't fall completely through the floor but bottom out at a sensible sustainable level on the old 3 x salary, 10% deposit, rule of thumb.
Delaying the inevitable in order to improve the slight chances that Mssrs Brown and Darling have of continuing ther present jobs after the next general election will only make things worse in the long run.
Paul, Coventry,
So there you go.
Everything is rosy - the reports of a crash are apparently overstated.
No need for an interest rate cut then.
gareth Jones, Dusseldorf, Germany
I want to take issue with the forever-repeated suggestion that "Worst affected are [would-be] first-time buyers."
If a would-be first-time buyer is priced out of the market, then they have no financial liabilities, and can continue to source accommodation in a number of ways (short/long term lets, houseshares, living with parents etc.) while they see what unfolds.
The idea that being unable to get onto the property ladder is the worst possible situation somebody could currently be in is demonstrably not true.
The worst affected at the moment are those with county court judgements against them coming off 2 year mortgage deals, BTL landlords sitting on flats in Leeds city centre, ... - the list goes on but it does not include would-be first-time buyers, who are to all intents bystanders to current events.
I speak as a would-be first-time buyer who is glad he held off to see the top of the market.
Alex, London,
Janie Dix, quoted in the article, is not a complete moron. Had she retained a bit of cash instead of investing it all, she could have been able to face a temporary lower rental income versus mortgage payment. In the long run, property pays off, but you need (slightly) deep pockets...
Stephen Mathers, London,
To: chris cunningham, Wokingham, United Lingdom
Nope, I don't want to buy your house for 450K.
Millions of others would rather wait untill it falls 30%.
They would rather have the cash left over in their back pockets to spend on themselves rather than hand it over to the banks.
Why on earth do you think the high price of your house is a good thing? You can't spend its equity without having to pay it back. Wouldn't you rather have more money yourself?
Crazy.
Gareth Jones, Dusseldorf, Germany
I was interested to read that Ireland, Netherlands and France were also "over valued" and may be due for an adjustment. I sold a property in the UK and bought a place in France last year and there doesn't seem to be any concern here that prices will fall and one Estate Agent I spoke to here said that houses had increased by 20% in France last year. There are still bargains to be had across the channel especially if you look away from the obvious "Brit enclaves". I am surprised that Spain wasn't mentioned as being due for a fall as I have read some articles about properties there being in a difficult market. I remember the previous boom-bust housing period in London and I have mixed feelings about what is going on in the UK now. I think that the banks are playing a waiting game and that things could quickly pick up if the worst dosen't happen soon, in which case, some first time buyers might get a chance at what they want.
Robert Giles, Louhans, France
I'm sure that prices will drop over all across the country. however everyone seems to be forgetting supply and demand. In the south, where all the good jobs are, there aren't enough houses. In my street, near public transport and just an hours commute from london, houses rarely come up for sale. If you want to buy my house it'll cost you the same as it was valued last year i.e. £450K. If not buy one of the others up for sale. Oh there aren't any - oops. If I had a couple of two bed flats up north I'd start panicking. I 'm sure there will be bargains to be had, but most people will just keep their nerve and sit this one out, just like in the 90's.
chris cunningham, Wokingham, United Lingdom
As prime becomes sub-prime, and sub-prime falls, risk premium rises, thus repayments rise fuelling the downward spiral, soon jobless will increase, and few but the foolish or brave will enter a market some believe could enter a tail spin. George Soros says the 'Superboom' is over. You would certainly need rose coloured specs to believe anything other. This will be the biggest house price decline perhaps in modern history, but it may not look like it ,as at some point the printing presses will commence to churn out fiat money by the bucket load to try and wash away the debt. The pound will collapse, and Inflation and interest rates will skyrocket again. Hohumm, the more things seem to change the more they stay the same.
Mark, llanymynech , powys.
Cinderella has just left the house party, and everything is about to turn to pumpkins and mice. The meek and patient first time buyers are about to inherit the hearth.
anthony, london, england
One way or the other the housing market will always hit a wall and so will always eventually crash.
In the 90s it was high interest rates and unemployment that got the economy to the point at which the productive parts of the economy could no longer bare the rate of interest on housing debt.
This time round, it is the size of the debt itself that has taken the economy to the point where the productive parts of the economy can no longer afford the interest on housing debt.
Prepare for a downward spiral in prices this time. Falling lending equals falling prices, equals further bank write downs, equals falling lending equals falling prices and so on until total dispair with housing it reached. Only by that point will we see an upturn. I'm penciling in 2013.
mike livingstone, Reigate, UK
People are just incredibly naive and stupid. They don't have the faintest idea how the banking system creates money out of thin air under the fractional reserve system. They don't understand that our 'capitalist' society is actually communist because our money supply is controlled by a single central bank. We are living under a centrally planned economy where the amount of money in circulation, a lending monopoly, has absolute control over the wealth and prosperity of the people.
Read what Thomas Jefferson, Benjamin Franklin and other had to say about central banks. It makes a lot sense.
The UK ecomomy is on the brink of catastrophe.
Matt, England,
The house quoted at the start of the article having sold at £1.965m in Oct '06, was originally sold for £1.45m in Aug '05 according to land reg figures. So a 25% fall will only take the price back to '05 levels. No wonder he has only had 3 viewings in 9 months. He believed the developer/EA hype. It has been a land price ponzi scheme kept afloat by cheap US credit. Last man to hold the title deeds when the music stops goes bankrupt.
John Smith, Manchester, UK
Price are up year on year. BUT, its a bell curve. in May/June the year on year figure will be flat and from then onward, for a very long time, possibly 10 years (re japan) at least 2 years (re-current USA state) prices will fall year on year.
Dominic, Munich, Gernany
Well Raj, other parts of the country may have started to slide, but down here in the South West things are still good! But they do say that "property crashes start in London then ripple-out towards the rest of the country", so yes, maybe a crash could be on the horizon later! But for now, at least down here (sorry to hear about the South London market!) the sun is still shining!
PS; Factors that affected the late 80's crash are not as relevant if a another crash is to happen ie; there was massive mortgage interest rates like 15%, whereas it now bobs around 5-6%. Also, there is now far more 'single occupancy' homes which increases demand for homes. Immigration also plays a part. And those are just some of the factors keeping prices strong for the last 8-10 years. But it is obvious prices have to stop rising at some point, so we are no doubt witnessing that now in some parts of the UK, but as to the whole country - just take a look at some of the regional news - 4.1% not strong eh?
joe, exeter,
Sky high house prices are not the victim of an economic downturn, they are the cause of it.
When the price-to-salary multiples go way out of whack, there is always only one result, crash.
Oh for the days when the old guys with pipes and moustaches ran the property industry, it really was as safe as houses.
Nowadays its run by young guns who are chasing fat bonuses,
control has gone, the fault of both banks and government.
Bank directors and traders have all run off with millions, so they couldnt care less about any property crash, and they were
not businessmen who were risking their own money, they were bank staff, already on good salaries.
Credit crunch is a quirky term given to a reckless greed disaster, with young people enslaved by ludicrous house prices. When they start giving up and throwing the keys back, we're all in trouble.
stephen wadey, rochester, uk
Homes should first and foremost be seen as places to live - a basic human right - not investments - I agree with Jeff from Darwin on that. What we need is a limit on residential property ownership (a maximum of two houses per individual) and an absolute ban on profit making businesses owning homes. We need to reverse previous deregulations and have much greater public and social housing investment- look to northern europe. Local authorities/housing associations should receive a great deal more investment to develop high quality homes for rent or for part ownership. We should introduce a 'wealth ceiling' - those with wealth over a certain level should be hit with a 100% wealth tax on that excess. Inheritance tax shoud also be 100% over a certain level. Use the receipts to invest in the public housing stock. These actions would kill the exploitation of housing for profit, suppress prices radically, and encourage people to spend their time creating real value rather than living on credit
don craigton, wakefield, u.k.
I think the fundamentals driving the market are the strengths of demand at its top and bottom ends. At the top there will be fewer and smaller City bonuses looking for expensive homes. At the bottom the amounts which first timers can afford will reduce because lenders will reduce what they are prepared to lend.
Much of the impetus for buying comes from believing that even a stretched purchase is secure in the sense that property values will rise, while any delay will only make the stretch feel tighter.
I think that values will come down 40-50% from their peak last October.
Simon, Etchingham,
If there is a 2% decline in home property prices for 2 years then the total devaluation in real terms may be in the region of 12-14%. With the contraction of credit supply a -2 % annual actual decline in prices is a moderate expectation and the downside to -30%+ in real terms is not improbable.
The growth in property prices is a puzzle as the quality of the asset declines while its value rises. Home property value is: land+building=asset value.
If l gains value and b loses value simultaneously then on what basis is a 300% growth in prices over 10 years based on as it would cost at least 10% to restore to its original condition?
The main factor is credit availability and the restructuring of lending credit on a basis of lower gearings in the capital-credit ratio of banks. Deposits of up to 25% may be required for home purchasers in the future and this will have a dampening effect on demand.
My conclusion is an extended downward correction in real prices for homes.
Greg, Hastings, Sussex
A folk memory based on the 1990s? A crash has followed every house bubble in every country in history.
The IMF had no idea policy makers would allow credit supply to go further than any rational person thought possible. It was surprised by how hard the BoE would try to keep the bubble going…cutting rates, the govt over-spending. That just means the crash will be even worse.
The bubble was worse last time? Surely you are not that ignorant? REAL prices then were far closer to their long term average during that peak. Inflation and wage growth were also very high! This time real prices have rocketed…that is why the ratios are more scary. All crashes start with price stagnation. Psychology drove the market up but you have a problem with it being driven down with it?
6% payments on 300k is the same as 16% on 100k. I live in South London. The market is strong? The same 300k houses have been there since August. Was it Rightmove that sacked over 100 agents here a few months ago? Strong??
Raj, London,
House prices rose by 4.1% in South West England over the last 12months (see Express & Echo 2/4/08). So the market is in NO bad shape yet!! There's just lots of 'talk', about crashes and slumps and stagnation - but the reality is that the residential property market (non buy-to-let) is still strong!
joe, exeter,
According to statistics.gov.uk, house prices were crashing in 1989 BEFORE unemployment began to rise. So that's that myth out of the window.
And what use is high employment when almost all gains are either through transient immigration or public sector spending, and native UK unemployment is actually up? Get real.
JM, Tynemouth, UK
Nick,
Good luck to you, fill your boots as they say. I have been a home owner and having sold would very much like house prices to fall, however I am not naive enough to expect it to be as simple as that. I would rather let some of the interest I get from my sold house pay for the rent on the house twice as big as the one I owned and let the rest accumulate in the bank for the tough times we now face because of peoples blind expectation of the perpetual gravy train that WAS the housing boom.
If I am wrong so be it, but for anyone believing this is a good time to buy now the "froth" has gone may be making a mistake they take a lifetime to recover from.
Good luck!
paul, Hull,
The key to any asset price inflation is a mix of credit expansion and and speculator frenzy. As long as credit expands, so too does homeowners' equity and investors' enthusiasm. Remove or tighten credit (mortgages) and you don't have to be a genius to work out what happens to prices - you can still ask what you want for a house, but if no one can get a mortgage to buy it at that price any longer, you might have to start being a little more realistic!
Rick, Manchester,
The rampant house price inflation of the last decade has been nothing but a cancer upon society with devastating consequences both economically and socially. The UK housing market is riddled with fraud and can only be described as one giant casino only now the tills are empty and the players strapped for cash.
The fact that house prices are now going into reverse should bring a sigh of relief to those members of society who just wish for a home for them and their families.
Actual real inflation has been sacrificed as the Bank of Neglect has targeted its policy at asset prices and the casino economy whilst disregarding real inflation. We all now face the consequences of that policy seeded by the Labour government.
The economic policy of the last decade, which was penned together by the Labour government on the back of a cigarette packet, is now being shown for the illusion it is. The pyramid is collapsing, but lets hope its doesn’t take the economy with it, but I have little faith.
Ad, UK,
Jeff, Darwin and jason, Tempe - most truthful comments so far!
patrick, the hague, netherlands
Nick,
Good luck to you, fill your boots as they say. I have been a home owner and having sold would very much like house prices to fall, however I am not naive enough to expect it to be as simple as that. I would rather let some of the interest I get from my sold house pay for the rent on the house twice as big as the one I owned and let the rest accumulate in the bank for the tough times we now face because of peoples blind expectation of the perpetual gravy train that WAS the housing boom.
If I am wrong so be it, but for anyone believing this is a good time to buy now the "froth" has gone may be making a mistake they take a lifetime to recover from.
Good luck!
Harry, Cambridgeshire,
People keep saying we have high employment. and low interest rates so it will be different this time.
Look at it and think long term, who knows tomorrow?
The banks are laying people off. The estate agents are struggling to sell property so will have to look at cost cutting, the shops are having reduced demand, so again will look at look at cost cutting, builders are in less demand.Solicitors doing conveyancing are having to look for work to stay busy and afloat.
The list continues and people still think we all safe and houses will not crash down.
andy , petersfield,
Yet again, an article describing the current drop in house prices as 'doom and gloom' - what about the doom and gloom of the generation of people priced out over the past few years due to rampant house price inflation? And those who wish to upsize?
This unprecedented bubble has benefited only banks (whose irresponsible lending should have been curtailed long ago) the government ('stealth' stamp duty & illusion of a healthy economy) speculators (BTLs, who will certainly be bailing out by more than a ratio of 1 in 10 as this article suggests) and downsizers (whose profits are often passed down to their children to buy...more property).
Also, our 'sub-prime' is going to be worse than the USA's (as E Marshall correctly points out) and NickM who is looking for a flat but believes there won't be a crash in London - be patient...it'll surprise even you. The threat of 'Doomsday' might have been postponed by the rate cut in Aug 05, but it didn't go away; it has just come back even bigger.
CP, London, UK
I don't know about the rest of London but prices are falling in the West quickly. There are now properties due to the price drops that I could almost afford with the old lending conditions. However lending has got rapidly tighter so my £25,000 deposit isn't big enough and I now need to save even more.
I think sellers are dropping their prices faster because of this lending tightening. They simply won't sell if they don't in this current overvalued market .
Gavin, west London,
Property prices are overvalued by 30% and it is the ease of lending as well as estate agent valuations over the past few years that is to blame. Mortgage companies greed and estate agents greed are the driving force behind this situation. Then there are the credit cards and the loans, You couldn't even buy an ice cream without the vendor trying to offer you credit. Well its all over now and its going to get worst. Final piece of advice, stop listening to Estate Agents and brace yourselves for a crash landing.
tony, london, uk
"Official figures show that employment is at a record 29.5m and unemployment at its lowest since the mid1970s."
Employed immigrants do not, as a rule, buy houses in Britain. Anyone who troubles to look at the details of employment data can see that unemployment in the UK remains high - it just shows up in the incapacity benefit figures rather than in the dole numbers.
David Boycott, LoNDON, LONDON
Stockport - south side of Greater Manchester - prices froze during the 1989 "crash" and there were certainly no price reductions. The crash seemed to bypass "ordinary" housing.
The excessively inflated housing, such as in London, buy to lets and those more expensive properties (how can you actually tell if a house is worth £1.75M?) may see a severe readjustment now, But provided you don't live in Bradley Stoke or somewhere similar, then I'd agree - house prices will flatten.
Ed, Cheshire,
The property crash is just in Act 1 - It can't 'appen 'ere!
Here in the US, we're in Act 2 - Foreclosure: And don't trash it before you leave it.
Why did we think prices could sustain 20% raises year after year after year? Get real.
Thomas Green , Chicago, IL, USA,
Homeowners must shoulder a portion of the blame.
Throughout the last ten years people were unable to resist 'just stick another ten grand on and see if we get it'.
Understandable but we must collectively reap what our greed has sown.
Mat, Muscat, Oman
20% of UK Gross Domestic Product comes from Finance related activities - ie "The City". Finance revenues are falling off a cliff - i.e. they will at least fall by 20% this year. The latter suggests that GDP is about to fall by 4%. Although I hope we don't have a property crash, I find that so many "house longs" are rather smug and dont believe a crash will ever happen. "If it can happen it will happen".
Dieter, London, UK
I bet there will be loads of comments here about the upcoming crash, mainly from people who are out of the housing market and who are desperate for it to fall, and probably they have been predicting doomsday for years. Has the froth has come off, definitely. A crash so you can pick up a cheap house - dream on. Things have to get alot worse before that happens. I am trying to buy a flat in central London by the way, and where I am looking there is nothing on the market, and prices remain stubbornly high.
NickM, London, UK
Let's suspend disbelief and assume Barclays' best case scenario of a 2% nominal drop in house prices for a moment.
Add RPI inflation of a little over 4% and that is 6% real terms.
On a £500k house that is a reduction in wealth of £30k in just one year.
Try that for 5 or even 10 years!
harry e, London,
No sympathy, and a degree of contempt. This is the peak of what happens when greed is allowed to transform a basic human right - shelter - into a speculative investment. A free-market has its place, but the housing market has gone too far. Too little regulation and too much greed.
I don't own a house, nor will I buy one in the foreseeable future (my rent is far less than what I would pay to buy the house I live in). I've got better things to do with my money than line the pockets of grabbing estate agents and financial institutions.
Jeff, Darwin, Australia
My view is that we are facing a worse economic crisis than the USA ,as the sub prime crisis affected only around 4 percent of their economy whereas the house price bubble combined with the financial credit squeeze could affect about 20 percent of our population. This is taking into account the number of people with credit card debts they cannot repay.
I think therefore that there is urgent need to reform our financial and banking sector.The Northern Rock fiasco was and is totally unacceptable-especially to see one of its architects paid off with UK taxpayers money when if Northern Rock had been left to go under he would have got nothing.It is outrageous that UK taxpayers money was/is so badly managed that there were not stringent tterms attached to the bailout , especially in respect of those responsible for gross mismanagement It gives all the wrong signals.
Let us hope the Bank of England does not print money and compound the pain with hyper inflation.
E.Marshall, Edinburgh, Midlothian, Scotland
Perfect Storm Of Our Own Making
High unemployment was a factor in the previous crash. However, there are other present fundamentals that will have as much of an effect, inlcuding:
-outside inflationary pressure
-mortages as higher percentage of earnings
-higher average personal debt
-smaller manufacturing sector - too much froth
In other words, Gordon Brown is in his own personal, pefect storm in a rowing boat without a paddle.
joe, Berwickshire, scotland
The most likely reason we will see a house price crash of unprecedented proportions is the amount of consumer debt many people now have. The rush to borrow unsecured loans in February indicates families are suffering financially, both from increased mortgage payments and inflation. It's barely begun, but when the crash really gets underway unemployment will rise, and unfortunately for many people, that will mean repossession. It's going to be a tough few years.
sophie, london,
As long as there are people with jobs who cannot afford to own a home, the price of owning a home is still too high.
Jason, Tempe, Arizona