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
Related articles
ON BEHALF OF MOST PEOPLE (Sandwell), on 28/09/2008 at 18:39
In addition, the majority of Estate Agents need to be seriously re-trained; a large propotion of houses are over priced..you only need to know a street and check it up online and you will see that some houses are over priced by at least 35%.
on behalf of most people (Sandwell), on 28/09/2008 at 18:33
The current financial mess is owed to the financial institutions(ie banks) that they have been silly or stupid enough to lend money to individuals or businesses that were unable to repay that money back. Adequate checks and a more cautious approach is needed by ALL financial institutions; for that category of people that they are more worried to finance their holiday or buy a new car rather than to keep up with their financial committments ie MORTGAGE...
Jonathan (Camden), on 06/09/2008 at 15:57
The housing bubble was caused by a sudden increase of buyers. They materialized because some people in the finance industry were looking for new ways to make money, so they started lending money to people who had no business having a mortgage. More demand for the same amount of property, and prices go up. So then more people get in on the game, creating more buyers than before, and the prices go up further still ...
Eventually the bubble bursts and the prices have to come back down. They have to come back down to more reasonable levels close to where they were when they took off.
Put another way, the number of buyers is plummeting because stupid lending practices are no longer in fashion, and then number of sellers is on the rise because increasing number of people cannot afford their mortgages. Fewer buyers and more sellers always causes a drop in housing prices.
As Tom Hanks said, "There's no crying in baseball!" It's sad for the people who got in over their heads, and I blame the financial people coming up with creative ways to lend money with only one possible outcome: housing bubble. And all bubbles crash. It's easy for an expert in a field to know what they are setting people up for, not so easy for first time buyers to full comprehend what's going on. That's why we need regulations ... anathema to many people I'm afraid.
david (Salisbury), on 06/09/2008 at 14:26
I don't think its a great time to buy within the UK market generally.
We have had housing stock triple in value over the last 15 years.
This was always unsustainable, and over inflated and was mainly driven by greedy estate agents over valuing.
People looking to make money should, if they must buy, invest in the cheaper low end stock with a view to renting out. We still have the lowest rate of new build in the UK since the 1950s. People still need
somewhere to live. Also property abroad in some Countries is still
very cheap compared to the UK. It is possible to buy in a Holiday
resort and get up to 20% return on your money by renting out in the
holiday season.
P S (Wigan), on 04/09/2008 at 11:06
Having bought a gorgeous apartment off-plan Feb 2005 as an investment/living, delivered in Dec 2007, to find prices were on the verge of a slump and flats had no market. In january i approached the builder and traded it in for a 4 bed house. In the end, i off-loaded a difficult to sell flat, guaranteed a mortgage as i ported the existing one (i made sure i could on the first purchase), and got a decent discount on the detached property due to the market (big builders need to show shareholders new build sales whether or not they are taking part-exchanges!!!) which in the end equalled profit on the apartment plus a good discount on the new! For this one its paper money as i intend it for my family home, eventually the market will be buyant again.
My points are: negotiate hard on any properties, have your maths ready, cheque book for holding fee, lure them with the idea you can agree a deal there and then IF its impressive, and be prepared to walk away (if the sales person doesn't stutter with surprise and doesn't make a couple of calls you're not even close to their bottom price).
If you now have a new flat for investment you don't want to live in medium term but have little choice, part-ex for new, you should be able to get 10% off a new house list price (i got more).
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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
Ruth (Dudley), on 25/07/2008 at 23:51
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