Are house prices in the UK going to fall and when?

Question

They keep going up beyond everybodies expectations. Surely this is un-sustainable? Does anyone know more about the trends and factors involved?

Answer 1

At the moment, demand is outstripping supply. In a market economy such as ours this means that the scarcer something is, the more money can be asked for it. Interest rates are at an historically low level and mortgage companies are lending more money to people based on a greater multiple of their salaries than in the past. House prices will only start falling in my opinion if the interest rates start to rise which could mean that people who have borrowed a large amount on low rates start to feel the pinch as that rate increases. I suspect that in order to buy a house in a rising market, many people must have used both their incomes to convince mortgage companies to finance them, when usually the best advice is to only base an application on one income only so you have the other to fall back on if times gets rougher.
If interest rates start to climb or increase slowly, but the medium to long term pressure indicates a continuing upward trend, then more people will probably look to sell the property that is costing them more, so that the market then becomes a buyers one rather than a sellers with more houses being offered up for sale. The more of something that is available then the market usually dictates the cheaper it becomes and there is a downward spiral on prices. I have no idea when this could happen, but I agree the current market is crazy. I don't know who these people are who can afford to buy. I know I can't and I am a so called professional person on a supposedly great salary. When I tell the banks what I pay in rental, they say "Good grief, you can get a mortgage for that!". When I say "OK then, how much?" They invariably say that I would get a better mortgage if I pay more a month as it turns out that even if I pay the same on a mortgage as I am renting it wouldn't be enough to buy a one bed-roomed flat in my area in the south of England. Charming. Sorry. Rant over !! LOL

Answer 2

I am quite pessimistic about the housing market.

The facts are: real estate provided a 150-year return of 2% over inflation.
People have record sums in mortgages (5-6 times annual salary).
Interest rates are increasing.

I just bought a house in Germany for 1/6 of the comparable UK price.

I can't tell you when. But prices will have to fall or grow very slowly over the next 10 years.

Answer 3

Even if house prices do fall it is likely to be a short term thing. There are so many people waiting for a house price drop they would jump in when prices started to fall, and that would push the prices back up.

Answer 4

The following answer applies the U.S. market, and probably can related to UK housing market.

How to value a property during market downturn?

Housing market continues to slump. Now we can calculate true value of a property easily. As price decline, we don't need to guess and factor in the potential price appreciation while calculating home value. Without the guesswork, figures are more accurate.

Let's use following example:

Today, a typical 15 years old, two bedrooms condo/townhouse is priced around $500,000 and $550,000 in Sunnyvale, California. Rent for similar condo/townhouse is $2000/month.

If you are a home owner, $2,000/month in rent means $20,000 a year in profit ($24,000 per year in rent, minus $4,000 maintenance costs). A $20,000 income is equilevant of owning $400,000 bonds or CDs, because current yield of 30 Years U.S. treasuries are 5% (5% of $400,000 is $20,000). Bank CDs have similiar yields.

In our example, the two bedrooms condo/townhouse is 20% to 25% overpriced. They should be priced at $400,000.

It is interesting to note that if we redo the calculation from buyer's perspective instead of seller's perspective, the figures are even more shocking.

Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn't add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.

It turns out that rent of $2000/month is equivelant to mortgage payment of a $340,000 loan at 7.0% APR. And comparing $340,000 loan to $500,000 or $550,000 price tag, from buyer's view, the two bedrooms condo/townhouse is 30% to 35% overpriced.

One may ask, why is there a discrepancy between two perspectives of the buyer and owner?

The discrepancy is a result of 2% differences in interest rate that buyer borrow comparing to yields of bonds and CDs that owners would get. We understand that buyer would always pay more. That is the premium of buying to own. However, looking from home owner's perspective, current housing market is probably 20% to 25% overpriced. We recommand investors to wait for a better entry point.

Answer 5

you're incorrect to the quantity you're basing your analysis on one assumption if all issues are equivalent which they don't look you want to characteristic in variables like homestead length area because it truly is furnish and insist project some places for eg may have a more desirable call for for small homes compared to massive homes so the market drop will be a lot less and so on

Answer 6

apparently if you watch what happens to the prices of the houses in london then this will be the same typ of trend that will happen in the rest of the country about a year later.

Answer 7

I hope so, me and my partner earn like 65k a year between us and we can afford to get on the property ladder

We have 2 kids so we need at least 3 bedrooms, so looks like we are stuck renting!

Answer 8

nope they'll rise and rise some more while people are willing to pay the price. i've a new development being built behing my house at the min its meant to be "affordable" housing and the cheapest plot they have is 135grand

Answer 9

I wouldn't imagine that they'll fall drastically to be honest. Perhaps a small decline, but they'll go right back up again anyway.

Answer 10

No they wont fall but they probably wont rise alot for another 5 years.