Mortgages, house prices & homeowners

In May 2006, the average house cost £164,632 (Nationwide House Price Index). In August 2008, it cost £164,654 – just £22 (just over 0.01%) less. After 10 consecutive months of house price drops, the average house price has only fallen back to where it was just over two years ago.

What does this mean for homeowners?

Whatever you may hear, falling house prices aren’t necessarily terrible news for all homeowners.

It’s temporary

House price drops are temporary. It’s a cyclical market, so anyone who can wait until prices recover will have lost nothing but the profit they expected to make in that time.

On the other hand, that’s no comfort to anyone who needs to sell soon.

It won’t affect mortgage payments

It won’t affect their mortgage payments, even if the value of the house drops below the value of the mortgage (i.e. ‘negative equity’ – owing more on a property than it’s worth).

On the other hand, mortgage payments won’t drop either. The house might be ‘worth’ less, but the mortgage won’t be – they’ll still owe the mortgage provider just as much, whether house prices are falling, rising or static.

It’s all about percentages

Anyone looking to move up the housing ladder could actually benefit from falling house prices (assuming they can find a mortgage). After all, a 10% drop means they could ‘lose’ £15,000 on the ‘£150,000 house’ they’re selling – but they could save £20,000 on the ‘£200,000 house’ they’re buying...

On the other hand, anyone moving down the ladder could lose more than they gain from dropping house prices.

Demand is there

House prices aren’t dropping because no-one wants to buy. There are plenty of would-be homeowners who simply can’t find a mortgage. This is because the credit crunch is making mortgage providers more wary about giving people mortgages. Once mortgages become more available, house prices could well start rising again.

In fact, the National Housing Federation expects the average house price to be nearly 25% higher in 2013 than in 2007. Builders simply aren’t building as many houses as they were when mortgages were relatively easy to get. Once the credit crunch tails off – and mortgages are more freely available again – there won’t be enough houses to keep up with the demand, so house prices could easily start shooting up again.

On the other hand, no-one really knows when the credit crunch will end. There’s just too much going on in the economic world today, so no-one really knows when the mortgage providers (and other lenders) will start feeling more confident about giving out mortgages (and other kinds of loans).

Mortgage help

Even today, in the midst of the credit crunch, mortgages are available. In some cases, they might cost more. In others, they might require a larger deposit. Even so, the right mortgage provider may be able to help would-be homeowners find the right mortgage and take advantage of today’s lower prices.

For mortgage advice, or help finding a mortgage, click here

• What does this mean for homebuyers?

Tags: mortgage, mortgages, house prices, house, prices, credit crunch

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