Oh dear, it seems the wheels really have fallen off the property train this time around. For several months those with a vested interest have been telling us to sit tight but several recent reports have concluded house prices are falling – and falling fast. So what’s going to happen – will there be a house price crash?
By Gordon Miller
4Homes Essentials
Property Search
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Firstly, let’s look at some key facts, courtesy of Halifax Building Society. House prices fell by 1.8 per cent in August, which was similar to the previous two months – June (-1.9 per cent) and July (1.7 per cent), but lower than in March (-2.5 per cent) and May (-2.5 per cent).
House prices in August were 10.9 per cent lower on an annual basis, which means the UK average property price has returned to the level it was at in February 2006.
Halifax chief economist Martin Ellis, said: ‘The pressure on householders' income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.
‘The recent announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south east of England. Market conditions, however, will remain challenging.’
So how can the statistics and comment be interpreted? For buyers, on the one hand falling house prices and an increased stamp duty threshold should make buying a property more affordable, shouldn’t it?
On the surface, yes. The Halifax reports that house price to average earnings ratio – a key affordability measure – has fallen from a peak of 5.84 in July 2007 to 5.13 in June 2008. Ellis said: ‘We expect a further decline as prices continue to soften.’
But if prices continue to ‘soften’ who, especially cash strapped first time buyers, are going to want to enter the market, which might yet ‘soften’ some more? The argument is at the heart of what many people say is the ‘government’s irresponsible promotion’ of recently introduced ‘buy now pay later free’ five-year loan schemes.
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