under the hammer
For the last couple of years much of the UK’s population has been trying to second guess both the financial and housing markets. Bank vault savings are yielding next to nothing, long-standing pension funds are being slowly whittled away and our traditional bastion, the price of our own private castle has been stagnant at best and declining at worst. Notwithstanding the obvious London bubble where prices remain at their 2007 high, from peak to trough, house prices have fallen nationally by about 20%, and rest assured it would have been far, far worse were it not for the Bank of England’s decision to keep long-term lending interest rates at 0.5%. This slashed and artificially low cost of home ownership has enabled many to keep paying the monthly mortgage at a time when real income was falling and the threat of impending insecurity rising.
Undoubtedly, many would take up the banks’ kind offer of cheap money but it ain’t that easy and our erstwhile institutions and pillars of society remain reluctant to lend it us. And for good reason! With too much property on their balance sheets the last thing they want to do is put more of it on in the form of further exposure. So we find ourselves in a stalemate position where sellers are under very little pressure to sell and buyers are either unwilling or unable to pay the prices being commanded by the sellers.
The coalition have mooted several crazy half-brained schemes to redress this but they won’t work. The fundamental issue is that house prices in most parts of the UK are still too high. If you wish to move to the peripheries of the island then you should be OK as Ireland’s property price crash is much closer to 60%. Having visited both Land’s End and John O’Groats of late, you’re welcome to them and I hope you’ll both be very happy there! No, what would really get the market moving is the one thing no-one in power wants to see happening…prices falling, dramatically.
And it’s going to happen. Firstly, London prices have been buoyed by foreign money. From wealthy Europeans looking to get their cash out of the eurozone to cash-rich Russians looking for a Belgravia crash pad, every single one of them has ploughed money into the UK. But it can’t go on forever. Ditto the interest rates. It may be a couple of years away but mark my words that the cost of borrowing will have to rise and in doing so the impact on house prices will be dramatic. Of course, buying a home is much more than merely the price of the property and any purchase needs to reflect this. If it isn’t and if it doesn’t then keep your money save and don’t even think of buying.
