Where next for the property market after Northern Rock?

01-10-07, UpMyStreet ©

The financial crisis that sparked thousands of worried Northern Rock savers to queue for hours to withdraw their money could have far-reaching implications for the property market.

With Rightmove reporting a 2.6% fall in asking prices immediately after the crisis, dampened confidence in the market could spell the end of the escalating house prices we've become used to in recent years.

Background to the crisis

A downturn in the global financial market led to Northern Rock requesting an emergency loan from the Bank of England, prompting a plunge in its share prices and customers withdrawing £2 billion.

Many property experts believe that the Northern Rock crisis is symptomatic of a growing lack of confidence in the economy which, coupled with interest rate rises, will lead to a downturn in property price growth.

Mortgage costs rising

As the Northern Rock crisis unfolded, many mortgage lenders reacted by raising the cost of their mortgage products, including Abbey, Alliance and Leicester, Halifax and Nationwide. Andy Hornby of HBOS said: "Increased mortgage costs to consumers will inevitably lead to a slowdown in the mortgage market."

Rightmove: "asking prices down 2.6%"

Rightmove's latest figures showed the lowest number of new sellers on the market since 2004, blamed partly by the introduction of Home Information Packs. The figures also indicated lower than usual buyer demand.

Nationwide: "house prices defied gloomy expectations"

Nationwide's latest figures made more positive reading with an unexpected 0.7% rise in prices. Chief economist Fionnuala Early said "The financial turmoil that began in August extended into September... this has not had an immediate impact on house prices, but the longer-term effect will undoubtedly be to take some of the froth out of the market."

The outlook for buyers

While a slower market could work in the favour of first-time buyers and help them negotiate a lower asking price, there could be far fewer properties coming on the market in the long-term. Keep an eye on recent property sales in your local area and property price trends to ensure you get the right price.

Mortgage costs are also rising, meaning you need to ensure when applying for a mortgage that you can afford higher repayments.

The outlook for sellers

Selling a home depends greatly on the local property market and area. If you're selling a home in an urban area - particularly in London and the South East - where housing supply remains a problem, you should be able to sell at your preferred price. Other local markets may be slower.

With moving costs rising and less competitive mortgage deals on the market, you may be inclined to stay put rather than sell, and find new projects to increase your home's value and space.

Help