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Two Year Low In House Prices

According to the Royal Institution of Chartered Surveyors, the price of homes has dropped to its lowest rate in more than two years. Many think that the drop in price is because the rising mortgage rates have made home buyers wary of making purchases.

Maybe the five interest rate increases by the Bank of England and a leap in the cost of credit is what contributed to the diminishing demand for new homes. This decline was a surprise to many lenders because, for the past ten years, the demand for homes had tripled. Apparently everything reaches a breaking point.

One RICS economist is positive that the slowed down rate of home purchasing is permanent. This same economist predicts at least six to eighteen months more of the weak housing market. His theory is backed up by recently released data from HBOS Plc that says even in the slowed down market, housing prices are still on the rise.

Even so, the Bank of England may not be able to completely curtail the rising mortgage rates. The inflation rate in Britain has surpassed the two percent target increase, and has now reached 2.1.

According to one surveyor from Knightsbridge, the market is showing symptoms of cooling off. This same surveyor said that it is taking longer to sell property and that there are fewer applications being registered for home ownership. This is illustrated by the fact that the price of luxury homes in London rose at the slowest rate since July of 2005. Some theorize that this is because of smaller bonuses and the cutting of jobs kept the higher income bracketed applicants from buying. Another illustration of a slowed down market is the leveling off of new home construction. Over the last twenty years the number of homes being built each year has diminished consistently.

Of course, if the decline in new housing creation continues, it will not be long before the housing market reaches another crisis—driving the prices of houses and the interest rates of mortgages right back up. It is possible, in the event of a housing shortage that housing prices will surpass their previous records. A need for new housing will create a rise in the cost of materials, which is one of the contributing factors to the overall price of a home.

Even with all of this evidence of a slowed market and economy, British citizens are still mired in almost one and a half trillion pounds of debt and are trying to deal with the highest interest rates since the turn of the millennium. This is not helped by the mortgage slump that has been happening in the United States and many banks are continuing to raise mortgage rates, which also damages housing affordability.

The Prime Minister has promised to put housing prices as a focal point of his current agenda and plans to write legislation that will outline a new building program in the middle of November. Alistair Darling officially cut his forecasts of economic growth on October 9th.

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