House prices fell 2.5% in May, according to Nationwide - the largest monthly drop since the building society began taking records in 1991. The fact that the comparison pre-dates the house price crash of the 90s, amplifies the drama of the statistic even further.
According to the BBC, at least 28% of us will be pleased to hear this news - the ratio who admitted in a recent poll that they want house prices to fall. Only 22% hope house prices carry on rising. Despite the doom-laden predictions of the media, many can and will benefit from a wholesale fall in UK house prices.
Who is most likely to benefit?
1. First-time buyers
Figures from Halifax reported a 187% increase in the average house price between 1996 and 2006, with the outcome that many first-time buyers were pushed out of the market. With price falls almost certain this year, first-time buyers can feel more positive. Mortgages will be harder to come by, with approvals down nearly 50% on 2007, but the predicted base-rate cut could reverse this trend and housing will be increasingly affordable.
2. Investors
Although conditions are as tough on investors as anyone else, those with sufficient capital have an opportunity to make a greater return in the long term. A weakening property market also creates opportunities for foreign investors - much like the British investors who are picking up bargains in places like Florida at the moment.
3. Upsizers
When prices are falling, it may not seem like the ideal time to upsize to a larger home, but smaller properties are usually disproportionately priced compared with larger ones. If you are trading up, the house you are selling will lose less value than the larger one you are buying - so making the move now could prove profitable.
4. Cash buyers
Those able to buy property with cash are few and far between, but if the mortgage situation stays the same - fewer approvals, with lower salary multiples - they could become the only ones able to finance a property purchase. Cash buyers can also move in quickly - an attractive trait for those wishing to sell quickly.
5. Landlords
In the wake of Bradford & Bingley reporting huge losses on Monday, now is not the time to enter the buy-to-let market. However, for anyone who is already a landlord, things could pick up. According to Paragon Mortgages, rental incomes rose 3.8% between January and April this year. As the UK's economy and housing market continues to be unpredictable, many renters will retain their current status rather than get on the property ladder.
The bigger picture
Of course, not everyone's going to benefit. The fall in house prices comes on the coattails of an economic slowdown, with a crunch on credit and a sobering forcecast for the price of food and petrol. So it's not a rosy picture for any of us - but a squeeze on the economy always yields some positives, encouraging sensible spending and saving habits.
For those not in the above categories, the biggest risk is negative equity - where the value of a property is less than the mortgage amount. According to Citigroup, a quarter of a million British householders are now in this situation, and this could reach 1m if Citigroup's prediction of a 15% fall in house prices by the end of 2009 is accurate.
It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009.
Howard Archer, Global Insight
The dreadlines
My partner and I bought our first house in December 2007, at the end of the peak of price rises!
Over the past few months we have seen house prices go down and I think we could have got more for our money if we had bought now. Though on the flip side of that, we may not have been given a mortgage now as we were borrowing many times our joint wage.
We bought our house hoping that we would make money on it and then eventually be able to upgrade to a larger house. This seemed to be what other people had been experiencing for the past 10 years. I'm now aware that the price may not increase and we could even lose money on our house.
Kate Huntley, Partnerships Executive, London
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Paul (South Staffordshire), on 15/08/2008 at 14:31
can I throw in a little food for thought based on my current experience... with the current market as it is in housing we have been looking at other avenues and areas... ever the budding entrepreneurs we decided to look at swapping our house. There are companies that do this brilliantly like homeswapper.co.uk, and having perused the net last night I noted that they have launched a new service and site called www.homeswapper4sale.co.uk. You can register for free now (looks like an introductory offer...) but this idea has worked brilliantly in the US, and the UK tends to follow the US market 10-12 months later. Let's see how the UK gets on with the idea...
Kate (Bedford), on 13/08/2008 at 12:55
Dan wrote:
Steve, you need to get a more balanced perspective.
You say it is only people talking prices down that is the root cause of price falls. But a market is composed of buyers as well as sellers. Why, then, is it not people talking prices up that has been the root cause of the price increases over the last 15 years?
House prices have followed a boom bust cycle for many decades if not longer. In the UK, I believe we are clearly past the price peak and can expect price decreases for several years. The anatomy of a bubble is very interesting. It is public greed and delusion that fuels inflation. Then even after the peak, there are many who suffer from denial before the reality of falling prices is undeniable.
I bought roughly in the middle of the bubble and can expect to come out even or slightly ahead in the end - no huge profit, no negative equity. But for those who are sitting pretty on enourmous property windfalls, ask yourselves this: is it fair that the average individual with an average salary in the UK cannot through years of hard work expect to save even one tenth of what those who bought and sold at the right time and location have profited from merely owning property? I think not.
Dan - You need to be more realistic. Since when has fairness ever had anything to do with life......
Stogie Bear (Isle of Wight), on 05/08/2008 at 23:24
What is interesting is the amount of people posting here who 'firmly believe' something based on what has happened in the past!
Recently it was announced that the stamp duty MAY be temporarily excluded for some buyers... this badly thought out ruse by New Labour will further delay buyers.
Sellers will still have to come up with hundreds of pounds for these insane 'HIPS' and as most sellers are not happy with what they include and hwow long that information is valid for they'll continue to either get HIPS after the house has had an offer on it, (buyers don't give a toss about HIPS) or simply not bother selling.
A big chunk of the affluent community have abandoned the UK or are in the process of doing so, leaving the poor and lower middle class chasing properties with gangs of immigrants who don't mind living in the back garden when the kitchen is full.
Prices are falling and it's only the stubborn resistance of sellers that is slowing this down at the moment.
Ruth (Dudley), on 25/07/2008 at 23:57
Neil M wrote:
Breaking down long-term factors behind the effect of house prices on an individual, the two that matter are buy-sell differential and net assets relative to spend. Assuming you remain in the same geographic area, buy bigger following a lengthy market dip, smaller after lengthy market gains. Then, according to whether your priority is increasing the amount of property you own or freeing up capital, you have saved the most or made the most, respectively. Note that unless you end up in the same buying situation during the same kind of market conditions TWICE, prudent, but progressive buyers will find things self-correct overall:
if you bought your first place near the peak, but move bigger after the predicted falls (15% is bandied about) you could have: 15% loss on a £150k flat i.e. £22,500 BUT SAVE £42k (15% on a £280k house). The £280k house becomes a cheap & sound longer-term investment - against which, losses on the flat are irrelevant history. A caveat in a weakening market: avoid modern developments near similar unused land or others still under contruction. The initially appealing zing of fresh decor is just why buyers will devalue yours against other newer, possibly cheaper pads (maybe now with extra incentives or higher quality trimmings). If you have the contacts, the skills, or spare budget, older with at least mild 'potential' is a good bet. If on restricted budget, enjoy the space without even needing to transform until near sale.
Why buy something today, that costs £150,000, when in a few months it will cost £140,000 and in a few months £130,000 and in a few months £120,000 and so on and so on. It's not good business sense.
Ruth (Dudley), on 25/07/2008 at 23:51
Eddy wrote:
My particular problem is how do I raise a £1m mortgage now?
In March if my property was ready for use (completed) I could have raised a mortgage but now due to the state of the market I can only get 80% and face losing my 20% deposit!
Why buy in a falling market? Who wants to catch a falling knife.
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Ruth (Dudley), on 25/07/2008 at 23:48
Angy wrote:
Dean wrote:
Ivana wrote:
Don't be fooled - a falling market it good for no-one unless you can guess the bottom and buy then.
Houses are no different to shares, how many amateurs make money there? take it from me virtually none, not even the professionals have been making money over recent years.
I do not agree with Ivana, there are many property professionals making money out of property. It is a 'professional' that will make money whatever the market conditions. Take a look at the UK Rich List and within the Top 10 or 100 the majority have earnt their money on the back of property.
Something is only worth what someone else is willing to pay so if a 25-30% offer below market value (what is market value in a falling market?) is the ONLY way that someone can get out of their situation then it has to be done. It is no use saying hold out and don't reduce your price, there are only a limited number of buyers so the market price will balance out. If you don't NEED to sell then don't because in the long-term property prices (just like the stock market) will always rise.
Take the long-term view and stop buying things you don't really need, ride out the waves and wait for calmer times.
I agree that a longer term view rather than a panicking doom and gloom view is what is needed. If the value of your house has gone down it's only relevant if you are wanting to sell. If you can stay put for a few years and ride it out, then think about selling when the values pick up again. Even the worst recessions pick up eventually! Yes you may really want an extra room or a bigger garden but why do it if it's going to cause you so much grief?
I completed on buying a bigger house in January and the people that bought my old flat were first time buyers with a 105% mortgage - OUCH!! Now people keep mentioning that "oh dear you bought at the top of the market and now your house value will have gone down" I answer that I also sold at the top of the market and the value of my current house is irrelevant until I choose or need to sell up. I have a fixed rate mortgage for a few years so don't need to concern myself until that's due to expire...
Just be patient and you will also see property prices rise again as the demand is still there. Banks are being overly cautious at present but they need our business to survive so the financial situation has to calm down again somewhat.
History tells us, stay in property 10 years plus and you will weather the storm. History tells us too, that boom and bust has always been a feature that has burnt many.
Ruth (Dudley), on 25/07/2008 at 23:44
Eddy wrote:
My particular problem is how do I raise a £1m mortgage now?
In March if my property was ready for use (completed) I could have raised a mortgage but now due to the state of the market I can only get 80% and face losing my 20% deposit!
Why do you want to buy now???
Ruth (Dudley), on 25/07/2008 at 23:41
Lucy (London) wrote:
melanie wrote:
I agree with the comments made by sellers, my house has gone down £5,000 from last year which i dont mind so much but with all this media doom and gloom it seems people buying at the moment think they can buy our house for peanuts all i will do is not sell and rent it out! A friend at work said the other day a buyer offered her £30,000 less than the asking price which is crazy!!
Melanie you need to wake up to living in with market economics. Your home is only worth what someone else will pay for it, not whatever you think it should be worth. We've just sold our flat for 12% lower than what we might have got last year, knocking £40k off the value. We are now looking to buy something larger and have come up against many vendors like you who seem to think they can get a price the same or higher than average sold prices last year! Since it is likely the market to fall further we will be negiotiating for a 15% -20% reduction on last years prices on what we buy.
Stop worrying about what you sell for and start negiotiating on what you buy at.
The days have gone when property went up by £xxxx pounds a month. Now they will go down by £xxxx a month until atleast 2010 maybe 2012, get used to it. My advice is get out while you still can or sit tight for the next ten years.
Ruth (Dudley), on 25/07/2008 at 23:35
Angy wrote:
Dean wrote:
Ivana wrote:
Don't be fooled - a falling market it good for no-one unless you can guess the bottom and buy then.
Houses are no different to shares, how many amateurs make money there? take it from me virtually none, not even the professionals have been making money over recent years.
I do not agree with Ivana, there are many property professionals making money out of property. It is a 'professional' that will make money whatever the market conditions. Take a look at the UK Rich List and within the Top 10 or 100 the majority have earnt their money on the back of property.
Something is only worth what someone else is willing to pay so if a 25-30% offer below market value (what is market value in a falling market?) is the ONLY way that someone can get out of their situation then it has to be done. It is no use saying hold out and don't reduce your price, there are only a limited number of buyers so the market price will balance out. If you don't NEED to sell then don't because in the long-term property prices (just like the stock market) will always rise.
Take the long-term view and stop buying things you don't really need, ride out the waves and wait for calmer times.
I agree that a longer term view rather than a panicking doom and gloom view is what is needed. If the value of your house has gone down it's only relevant if you are wanting to sell. If you can stay put for a few years and ride it out, then think about selling when the values pick up again. Even the worst recessions pick up eventually! Yes you may really want an extra room or a bigger garden but why do it if it's going to cause you so much grief?
I completed on buying a bigger house in January and the people that bought my old flat were first time buyers with a 105% mortgage - OUCH!! Now people keep mentioning that "oh dear you bought at the top of the market and now your house value will have gone down" I answer that I also sold at the top of the market and the value of my current house is irrelevant until I choose or need to sell up. I have a fixed rate mortgage for a few years so don't need to concern myself until that's due to expire...
Just be patient and you will also see property prices rise again as the demand is still there. Banks are being overly cautious at present but they need our business to survive so the financial situation has to calm down again somewhat.
Dream on.
Ruth (Dudley), on 25/07/2008 at 23:32
The financial outlook is grim beyond belief. Wake up UK! A recession followed by depression will ruin all apart from, people in recession proof jobs and or large savings and or brought property pre 2001.
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