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House Prices in the UK – Facts That Maintain The Value Of Your Home

According to the Halifax house price index house prices in the UK fell by 2.5% in March. Over the first quarter of 2008 they were 1% less than the last quarter of 2007.

The significance of this news as much psychological as economic. Here are reasons not to panic.

  • It is worth bearing in mind that there are strong economic reasons that support house prices: a strong labour market, low interest rates, increased demographic demand due to social changes, strict planning regulations leading to a shortage of new houses being built.
  • The pattern of price movements varies considerably across different regions. House prices were up 1.6% in Greater London, East Anglia 1.4%, East Midlands 2.2%. But prices were down by 5% in the West Midlands and 4.7% in Wales. We must not forget the bigger picture that prices are have nearly doubled over the last 10 years.
  • Current market conditions represents an opportunity for cash rich buyers across all market sectors.
  • A third of owner-occupiers own their homes outright.
  • A quarter of houses are bought with cash.
  • We can learn from history and compared the situation now to the last time house prices peaked. In 1990 inflation was 10%, interest rates where high and increased. That caused the economy to go into recession. Recession lead to an increase in unemployment as economic output fell. The main cause of the fall in house prices in the early 1990s was high unemployment as those who unfortunately lost their jobs could not keep up the mortgage repayments. Unemployment went from 1.5 million in 1990 to nearly 3 million in 1993. Today employment remains at a record high and unemployment is below 800,000. As more people have taken jobs since the early 1990s, so the demand for houses has obviously increased.
  • Consider affordability: today's new mortgage borrower spends - on average - less than a third of their income on monthly mortgage repayments. This is still below the equivalent amount spent in the early 1990s. Then interest rates were 10% and peaked at 15%. Today's interest rates are lower, plus the rate is being reduced.
  • Today's new borrower is typically on a fixed-rate mortgage. This gives added protection against any rapid spike in interest rates. An equivalent type of mortgage was essentially unavailable to the 1980's borrower.
  • The government's housebuilding target is to build 3 million new homes by 2020. This is needed because of the increase in new households. Current levels of new houses being built is significantly short of the government's target. During 2007 there was a 20% shortfall.

So for the majority of home owners the economic position is much more positive than the media's concentration on recent house price falls.

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