Boom or Bust?
Much has been written in the past few years over the seemingly endless increases in the price of houses. Housing has gone up so severely in cost that some statistics say that 95% of new buyers cannot afford to buy houses in 95% of towns and cities in the UK. Even some new housing developments have seen prices rise by as much as £50,000 in little over two years.
So with the global credit crunch now in full swing and the US Treasury openly accepting that the US economy is facing a ‘sharp decline’ (though there is hope of some recovery at the end of the year) is there any possibility that house prices will continue to rise?
In short, yes – albeit in certain areas. Some sources suggest that Scottish house prices could rise by as much as 7% over the course of the next year which would see a maintenance or even increase on current rates.
Outside of Scotland, though, predictions are far less positive. In London where one leading company reported an increase in housing cost of 13% in the past year, this year has predicted a rise of only 1%. In what is considered to be the ‘prime’ areas of London, the price of housing is predicted to hold steady at a 3% rise, though for the first time in two years it is predicted that prime London will cease to lead the UK housing market.
So what for those outside London? Well a number of companies are predicting small increases of up to 3%, or at least an exact maintenance of current costs over the year, with a moderate decrease in the first half of the year being countered by a gentle rise in the second half.
Other sources, however, are predicting nothing short of a complete crash. House prices in the UK, it is generally accepted, are over-inflated, one source suggests by as much as 44% and predicts that over the coming year the prices will come down to a level more akin to actual value. This is a huge drop, and admittedly unlikely, but other sources are predicting decreases by as much as 20% across the board, fueled by the buy-to-let sector leaving the market.
A steep drop in housing prices will obviously have serious impact for a lot of people, but there are potential positives to such an event. Whilst house owners will suffer, renters will benefit from a decrease in property prices. Furthermore, first time buyers will benefit from any drop as it can only increase the affordability of housing. An impact could also be felt if people need to borrow smaller amounts of money in order to afford to buy housing, thus reducing the likelihood of people defaulting on housing contracts – an event that is widely accepted to have initiated the credit crunch in the US in the first place.
Ultimately it is impossible to accurately predict what the market will do, particularly in a time of global financial uncertainty. With predictions ranging from an increase in prices of nearly 5% to a drop of nearly 45%, what happens this year is anyone’s guess. All that can really be done is to be as prudent with personal finance as possible and wait and see what the future brings.
If you’re thinking of buying property over the coming year, then take a look at Fish4 to access a useful property directory. Alliance and Leicester also come as recommended for supplying some of the top mortgage rates in the UK – an especially notable lender to head to if you are one of the 1.4 million people coming off their fixed rate mortgage in 2008.
