Expert mortgage views & facts

With credit conditions tight and mortgages hard to come by, the UK housing market is facing a tough time. According to the Nationwide House Price Index, house prices have dropped every month since November 2007.

Now, Nationwide has announced that the value of the average UK house dropped by another 0.9% in June. Not exactly welcome news for homeowners, but things could be a lot worse...

Reasons for optimism
A drop of almost 1% is still a big drop, but at least there’s no sign of the overnight slump in prices which many have been predicting. What’s more, the rate of decline isn’t accelerating – June’s 0.9% drop was less than April’s 1.1%, and less than half of the 2.5% drop we saw in May.

Monthly change in average price, as reported by Nationwide:

After so many years of rapid house price inflation, prices would have to drop a long way further before most homeowners started ‘losing’ money: prices may be 6.3% lower than they were one year ago, but they’re still 4% higher than they were two years ago.

Furthermore, falling prices don’t necessarily affect people as directly as you might think. For some people, they’re actually good news.

Getting on the housing ladder
Would-be homeowners, of course, are likely to be relieved that prices are coming down. This could be the ‘break’ they’ve been waiting for to get onto the housing ladder – as long as they can get a mortgage. Getting a mortgage, however, could be a problem, now that lenders are, in most cases, charging more and requiring larger deposits.

Staying on the ladder
Experienced homeowners probably know that it’s normal for house prices to rise, fall – and rise again. Most will realise that the value of their home will start rising again, although they don’t know whether it’ll take a year or five years. For them, this decline in prices probably won’t be much of an issue unless they can’t wait that long before:

• securing a loan against their property,
• remortgaging (with a debt consolidation mortgage, for example), or
• selling their property.

Moving up the ladder
If someone’s looking to move up the property ladder, dropping prices can act in their favour – as long as they’re moving to an area where prices are dropping*. True, they’ll get less for the property they’re selling, but they’ll also pay less for the property they’re buying.

To take a simple example, imagine Mr Smith is selling his £200,000 house so he can buy a £300,000 house nearby. If prices in the area come down by 10%, that’ll knock £20,000 off the value of his current house, but £30,000 off the one he’s looking at. He’ll actually be £10,000 better off than he would be if the housing market was flat!

*As with any system of measurement, the average is only a guide – house prices in some areas are dropping much faster, and in other areas they’re still rising.