{"id":84249,"date":"2022-12-02T15:37:33","date_gmt":"2022-12-02T15:37:33","guid":{"rendered":"https:\/\/ukcontractormortgages.com\/?p=84249"},"modified":"2022-12-07T16:29:24","modified_gmt":"2022-12-07T16:29:24","slug":"house-prices-what-happens-when-they-fall","status":"publish","type":"post","link":"https:\/\/ukcontractormortgages.com\/house-prices-what-happens-when-they-fall\/","title":{"rendered":"House prices: What happens when they fall?"},"content":{"rendered":"\n

Annual house price growth has slowed, and the latest monthly figures show a fall, according to Nationwide.<\/strong><\/p>\n\n\n\n

It follows the Bank of England’s decision to increase interest rates to 3%, meaning higher mortgage costs for many. Further rate rises are expected.<\/p>\n\n\n\n

What is happening to house prices?<\/strong>
In the last two years, prices rose steeply – by about a quarter – across most of the UK.<\/p>\n\n\n\n

That pace of growth was much faster than that seen after the 2008 global financial crisis, where houses lost about a sixth of their value and it took five years, on average, for prices to recover.<\/p>\n\n\n\n

However, they have now started to slow.<\/p>\n\n\n\n

Nationwide’s figures show prices fell by 1.4% between October and November – the sharpest monthly drop since the middle of 2020.<\/p>\n\n\n\n

On an annual basis, it found prices grew by 4.4% compared to 7.2% in October.<\/p>\n\n\n\n

The building society said the housing market looked set to “remain subdued” in the coming months.<\/p>\n\n\n\n

Will house prices fall in the UK?
<\/strong>Monthly changes can be blips, but the UK’s largest lender, Lloyds, is planning for an 8% price fall next year.<\/p>\n\n\n\n

In November, the Office of Budget Responsibility (OBR), which advises the government on the health of the economy – predicted that house prices will drop by 9% over the next two years.<\/p>\n\n\n\n

Big jumps in interest rates put pressure on the amount people can afford to offer for houses, and that means less demand.<\/p>\n\n\n\n

Mortgage affordability also depends on wider cost-of-living pressures like energy bills, wages and job security. The future of house prices depends on the economy as a whole.<\/p>\n\n\n\n

Get in touch with us today to speak with the UK\u2019s\u00a0Best Contractor Mortgage Broker<\/a><\/strong>.<\/em><\/p>\n\n\n\n

What happens when house prices fall?<\/strong>
Falling house prices have the biggest immediate effect on people who want to move.<\/p>\n\n\n\n

Some sellers may decide to delay putting their homes on the market. Homeowners who are considering moving may find they have less money to spend.<\/p>\n\n\n\n

There were fewer property sales this year than in the 12 months leading up to last summer’s surge in prices before the temporary stamp duty reduction ended.<\/p>\n\n\n\n

But if interest rates stay high, an increasing number of people will come off fixed-price mortgages (about 100,000 each month) to new, higher rates.<\/p>\n\n\n\n

Some homeowners will find higher these monthly payments unaffordable, making them more likely to sell.<\/p>\n\n\n\n

First-time buyers may find properties are more affordable, allowing them to get a foot on the ladder – assuming they can get a mortgage.<\/p>\n\n\n\n

But a drop in prices can also send shudders through the finances of those homeowners who are staying put.<\/p>\n\n\n\n

At the most extreme, homeowners can end up in negative equity – where the amount they have borrowed is greater than the current value of their property.<\/p>\n\n\n\n

With about a third of household wealth tied up in home values, falling prices can make people feel less financially secure, mean they save more than they spend.<\/p>\n\n\n\n

Less spending can make an economic slowdown even worse.<\/p>\n\n\n\n

Get in touch with us today to speak with a specialist\u00a0Contractor Mortgage Advisor<\/a><\/strong>.<\/em><\/p>\n\n\n\n

Are people struggling to pay their mortgage?<\/strong>
The number of people in arrears peaked during the 2008 financial crisis, but did not rise significantly during the pandemic, helped by lenders granting payment holidays.<\/p>\n\n\n\n

In the worst case, payment difficulties can lead to banks and building societies repossessing houses, although lenders try to avoid this.<\/p>\n\n\n\n

More than 200,000 properties were repossessed in the five years after the financial crash.<\/p>\n\n\n\n

As a result of the Covid pandemic, repossessions were suspended between March 2020 and April 2021. In the year after they restarted, there were fewer than 4,000.<\/p>\n\n\n\n

Does a drop mean a house price crash is inevitable?<\/strong>
When the Bank of England raised interest rates by 0.75 percentage points to 3% on 3 November, it was the biggest single rise in the cost of borrowing since 1989.<\/p>\n\n\n\n

After the mini-budget, financial markets were forecasting that the Bank of England’s interest rate would rise above 6% in 2023.<\/p>\n\n\n\n

However, traders now expect the peak to be under 5%. You can use the mortgage calculator above to see how big an effect those kinds of changes can have on monthly repayments.<\/p>\n\n\n\n

In the early 2000s property boom, 100% mortgages and cashback offers were not uncommon.<\/p>\n\n\n\n

But after the 2008 financial crash, mortgage lending rules were tightened.<\/p>\n\n\n\n

As a result, loans should leave more room for prices to fall before borrowers are stuck with negative equity.<\/p>\n\n\n\n

Most recent borrowers have also had their ability to pay checked against interest rates even higher than the ones we’re seeing at the moment.<\/p>\n\n\n\n

By Robert Cuffe & Christine Jeavans<\/p>\n\n\n\n

Source: BBC News<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Annual house price growth has slowed, and the latest monthly figures show a fall, according to Nationwide. It follows the Bank of England’s decision to increase interest rates to 3%, meaning higher mortgage costs for many. Further rate rises are expected. 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