Are UK House Prices set to fall?
There are several factors that point to UK house prices falling in 2007 or 2008
1. House prices have been increasing at a rate far higher than both inflation and earnings. This means that the affordability of buying a house has decreased. This is especially the case for people in their 20s who have not bought a house before.
2. High levels of debt in the UK. UK consumers are currently experiencing high levels of debt, this is both from credit cards and mortgage payments. Therefore a rise in interest rates has a big impact upon people’s disposable income. Even the small increases in interest rates are therefore likely to cause a big fall in demand for housing.
3. Buy to Let Speculators could start selling. To understand why UK house prices may fall it is important to understand why UK house prices have risen so much. Part of the reason is that Investors have been buying houses to let. This means they get income from renting to pay the mortgage but the main motivation is that they hope to make capital gains. With rising house prices, other investors jump on the bandwagon and start buying. This magnifies the increase in house prices. However when house prices start to slow down these buy to let investors will sell, causing overall demand to fall.
4. The renting market has started to slow down. Rents are not rising by the same rate as house prices. This makes it more likely that buy to let investors will not remain attracted to the UK housing market.
5. Core inflation is higher than the government’s target. Measuring inflation using the old RPI measure, inflation is currently running at about 4%. This means it is likely interest rates may have to continue rising in this year. Higher interest rates of course push up the cost of mortgages and therefore cause demand for houses to fall. UK house prices are therefore susceptible to any future rises in interest rates.
1. House prices have been increasing at a rate far higher than both inflation and earnings. This means that the affordability of buying a house has decreased. This is especially the case for people in their 20s who have not bought a house before.
2. High levels of debt in the UK. UK consumers are currently experiencing high levels of debt, this is both from credit cards and mortgage payments. Therefore a rise in interest rates has a big impact upon people’s disposable income. Even the small increases in interest rates are therefore likely to cause a big fall in demand for housing.
3. Buy to Let Speculators could start selling. To understand why UK house prices may fall it is important to understand why UK house prices have risen so much. Part of the reason is that Investors have been buying houses to let. This means they get income from renting to pay the mortgage but the main motivation is that they hope to make capital gains. With rising house prices, other investors jump on the bandwagon and start buying. This magnifies the increase in house prices. However when house prices start to slow down these buy to let investors will sell, causing overall demand to fall.
4. The renting market has started to slow down. Rents are not rising by the same rate as house prices. This makes it more likely that buy to let investors will not remain attracted to the UK housing market.
5. Core inflation is higher than the government’s target. Measuring inflation using the old RPI measure, inflation is currently running at about 4%. This means it is likely interest rates may have to continue rising in this year. Higher interest rates of course push up the cost of mortgages and therefore cause demand for houses to fall. UK house prices are therefore susceptible to any future rises in interest rates.
Labels: UK house prices
0 Comments:
Post a Comment
<< Home