Expert mortgage views & facts

Is now a good time to get a mortgage? In October 2007, according to the Nationwide House Price Index, the price of the average house peaked at £186,044. Fast forward 10 months to August 2008, and that average price had dropped by over £21,000.

What does this mean for homebuyers?

Most people thinking of buying their first home will be pleased to see prices falling. They may be delighted to hear Nationwide’s chief executive, Graham Beale, talking about an overall drop of as much as 25% (from peak prices).

In an interview with BBC News, Mr Beale stated that prices might not begin to recover until 2010: “I think that next year we will see a similar pattern to this year...we will see further falls in house prices. And I think before we really get to the new world, whatever that is, I think we will be into 2010.”

However, it’s not all good news for homebuyers.

Mortgage availability

There’s a good reason prices aren’t expected to rise anytime soon: demand is down because many people are finding it hard to get a mortgage. With fewer people actively looking for houses, sellers are being forced to drop their prices to attract the people who’ve been able to find a mortgage.

Even so, there are still plenty of mortgages available, partly thanks to major initiatives such as the Bank of England’s Special Liquidity Scheme. According to the Council of Mortgage Lenders, gross lending totalled around £21.8 billion in August. That’s a drop of 36% from August 2007 – it’s a big drop, but remember the housing market was still booming in August 2007, and prices wouldn’t peak for another two months.

Mortgage risks

So people who do find a mortgage stand a good chance of buying a property for much less than they would have paid last year. If prices begin climbing again in the near future, they can congratulate themselves on taking advantage of a short-term price fall.

But if prices continue dropping, they (like anyone else with a significant mortgage) would run the risk of negative equity: owing more on the mortgage than the property is actually worth.

Even so, for most people, the alternative to buying is renting. Anyone renting a home knows their rent money is gone for good, but homeowners know that house prices always go up in the long term. Whatever value they lose today they will regain at some point in the future – even if nobody knows when.

Plus, prices aren’t dropping at the same rate all over the country. Depending on whose figures you believe, properties in some areas are gaining in price right now…

If you’re looking for a mortgage, click here.

What does it all mean for homeowners?