How far will house prices fall in 2008?

By MoneyhighStreet Staff. Published on January 9, 2008 This post currently has no comments.

house prices

The outlook for British home owners in 2008 is not good. As the cost of credit, energy and other household costs continue to rise, property in Britain is beyond the reach of many first time buyers and many existing home owners are struggling to keep up with mortgage repayments. We look at the property market outlook for the coming year.

Whichever way you look at it, the fact is that house prices will continue to fall in 2008, and maybe even beyond. The extent of the housing market correction remains to be seen and analysts' predictions vary significantly.

Research carried out for the Daily Telegraph last week pointed to a 4% drop in house prices in 2008, while this website reported that the fall could be as high as 35% over the next three years. However, only time will tell the true extent of the drop in house prices.

So, what does this mean for homeowners and home buyers? Well, if your a homeowner any drop in prices is bad news. If you bought your house more than a few years ago it may not be so bad, as you will have seen a significant increase in the value of your home already. You will also have made some inroads into paying back your mortgage so you should be able to handle a fall in house prices.

If, however, you bought your house in the last year or two you could be at risk of falling into negative equity, especially if the loan-to-value ratio of your mortgage is high. The Bank of England last week warned that it is expecting the number of mortgage defaults and repossessions to rise significantly this year.

If you are planning to buy a home the current economic climate has its advantages and disadvantages. A fall in house prices would, of course, be to your advantage as you will have to fork out less for your new home. However, actually getting the credit to pay for a home is another matter. Lenders already strict lending criteria is expected to get stricter this year, so unless you have a good steady income and a squeaky clean credit rating you may find it very difficult to get a home loan.

Existing homeowners in normal circumstances would be able to shop around for a new mortgage that provides better value than their existing home loan. However, banks are currently more focused on keeping existing customers than taking on new ones so it might be better to begin by asking your current mortgage provider for a better deal. If not, shop around but it may be difficult to secure a new mortgage in the current climate.

From a homeowner's point of view, probably the best thing that could happen in the short term is that the Bank of England cuts its interest rates tomorrow. It cut its base rate from 5.5% to 5.75% at the start of December and a similar cut tomorrow would be a welcome development for a number of reasons. Not only would it ease the pressure on existing homeowners, it should also encourage first time buyers to enter the market. This increase in demand could go some way towards stabilising house prices.

Unfortunately, the general economic outlook for the coming year doesn't look so good at the moment. UK business confidence is at a two-year low and the credit crunch shows few signs of easing. So, now that Christmas has come and gone we urge consumers to be prudent. If possible, focus on saving rather than spending and borrowing, and be prepared for a correction in the housing market.

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