02-07-08, UpMyStreet ©
A year ago, in July 2007, US bank Bear Stearns was beginning to crumble, and make headlines over here. Now, UK companies are planning on cutting 440,000 jobs in the next two years to stabilise their own outgoings, according to a study by Capital Economics.
It's easy to become saturated with information about the state of the UK economy. We bring you our take on the good and bad news, for homeowners.
1. House prices
Bad news: House prices fell by 2.4% in May alone. Back in 2007, house prices were being predicted to rise anywhere between 3.5% and 8% in a year - now they are predicted to fall at least 3% (Capital Economics) by 2009.
Good news: Although homeowners face a reduction in their equity, there is little impact for those looking to up or downsize, with house prices falling across the board. First-time buyers and landlords - who have seen a 41% increase in the uptake of leases in the last year (Your Move) - are among those with the potential to benefit from falling house prices.
2. Mortgage approvals
Bad news: Mortgage approvals are at their lowest level since records began in 1993, according to Bank of England figures. Approvals for May were down 67% on the previous year.
Good news: According to the Council of Mortgage Lenders, strong remortgaging activity is holding the market up.
3. Repossessions
Bad news: In the last year (May 07 - May 08) there has been a 17% rise in repossession orders - partially the result of homeowners being unable to pay back unrealistic mortgages.
Good news: Though the 27,100 repossessions predicted for this year is higher than 2007, this is nowhere near the 75,100 homes repossessed in the 1991 property crash.
4. Inflation
Bad news: Petrol is up 17% on last year, food is up 12.6%, energy bills are predicted to rise 40% and the Chancellor has called for a freeze in wage rises to stabilise the situation. Many of us will need to cut back on our spending habits.
Good news: In the 1970s, inflation topped 27%. We have been experiencing a long period of low inflation, which is why a rise in costs only seems shocking, according to Dr Andrew Sentance of the Monetary Policy Committee.
5. Housing market
Bad news: The number of home sales has fallen 32% in the last year (Her Majesty's Revenue and Customs) and the number of new homes being built is down 60% (National House Building Council). Those most affected are property developers and investors. Anyone looking to sell their home is also likely to have a longer wait, with first-time buyers waiting for the market to bottom out or battling to get a mortgage, and homeowners staying put.
Good news: First-time buyers, cash buyers, international buyers, investors - read our feature about those who can benefit from the current housing market.
6. Interest rates
Bad news: Mervyn King has stated that 'interest rate rises cannot be ruled out.' A rise in interest rates could mean a rise in payouts for homeowners with a variable rate mortgage.
Good news: The Bank of England held interest rates at a relatively low 5% on June 5, and many economists are predicting another drop. In the event of a rate rise, savers stand to benefit.
I have two kids and since this time last year we seem to get so much less in our weekly shop. We're keeping very close tabs on our expenditure. Our plan was to move house this year as we need more room for the kids - however plummeting house prices in our area has put this on hold, as we'd rather wait for the market to bottom out before we make our move.
Gordon Coe, Project Manager, Ascot
Related articles
We face the most difficult economic challenge for decades...It will not be an easy time, and I know that some families will find it particularly difficult.
Mervyn King, Governor of the Bank of England, June 19 2008
Useful property links
Cost of living facts
- The average person needs to earn at least £13,400 a year, before tax, to reach the minimum standard of living (Joseph Rowntree Foundation)
- Inflation may reach 4% before it starts to drop, according to Mervyn King
- The UK has the highest cost of living anywhere in the Western world (Economic Research Institute)
- The cost of food has gone up 12.6% in the last year, according to The Grocer magazine
Paul (Waltham Forest), on 11/07/2008 at 11:28
Talking of the credit crunch, what happens when all these people fail on their mortgages and get made homeless, the council wont be able to help them, they sold all there properties years ago
pete (North Somerset), on 07/07/2008 at 10:41
why does anyone listen to capital economics? their record of getting it right is worse than gordon brown's
Lia (Kingston upon Hull, City of), on 04/07/2008 at 16:34
Juanita (Waltham Forest), on 04/07/2008 at 16:08
Pamela Buchanan wrote:
I would ask government to try an unusual tactic and actually use a modicum of common sense by encouraging first time buyers back into the market place by removing stamp duty. For those who are looking to sell, and then buy another property why not tier stamp duty at a sensible scale up instead of the ridiculous situation we have at the present time.
Pamela, re Stamp Duty, I couldn't agree more. But let's face it, it's not going to happen because the Govt will never get their snouts out of the trough long enough to actually plan sensible policy.
paul williams (Wrexham), on 04/07/2008 at 15:56
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Pamela Buchanan (Salford), on 04/07/2008 at 15:27
I would ask government to try an unusual tactic and actually use a modicum of common sense by encouraging first time buyers back into the market place by removing stamp duty. For those who are looking to sell, and then buy another property why not tier stamp duty at a sensible scale up instead of the ridiculous situation we have at the present time.
James (Suffolk Coastal), on 04/07/2008 at 15:21
Gary,
Please use a spellchecker.
Gary (Pendle), on 04/07/2008 at 14:48
Yes i agree house prices are too high but I need to relocate due to a job change, i'm not to bothered about prices going down because prices will have also dropped to where i need to move to but what erks me is I cant sell my property for love or money at the mo. I also blame the mortgage lenders for fuelling the crazy house prices by lending obsene amounts of money to people who clearly cant sustain the amount of borrowings, If they had kept to the traditional 3-3.5 income multipliers I believe we would still have reasonable and affordable housing.
Paul Williams (Wrexham), on 04/07/2008 at 13:23
Juanita West (Waltham Forest), on 04/07/2008 at 13:09
Well, London up by 6% on this time last year is no disaster in my view! The explosion in prices that we saw in the last couple of years was frightening towards the end because it was so clear it could not continue and was going out of the realms of the reasonable. So a "correction" is healthy, even if, as a property investor, I say that slightly ruefully! On a different angle, the "Credit Crunch" (sounds like a biscuit!) is, I think, something positive. In this country we have always had a history of valuing people for their worth or talent rather than their money. In recent years, we were basing our values more and more on money. The Crunch makes us reassess and remember the important things in life. Family, friends and health are the only things that matter. Long live true values (but let's hope we don't go bankrupt in the meantime!)
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