According to Harvey Jones of lovemoney.com the UK property market is invincible. Not due to any scientific analysis but more because of our irrational view to the ownership of property in Britain.
“Perhaps the most astonishing thing about the credit crunch is the relatively mild impact it has had on the housing market.” He rightly says. He points out the long term damage that the economic downturn has had on the stock market, pensions, savings, salaries and employment. But how come the UK property market has been spared so far?
When the recession came many people hoped that it would put an end to the madness of 125% home loans and income multiples for mortgages of over five times salary. Then it was surmised prices would have to come down. Well to an extent that is what happened. 125% LTV loans did go and the income multiples insisted on by mortgage lenders started to get more sensible. House prices also began to fall. But miraculously even with credit tightening and a further squeeze possibly on the way, house price buoyancy recovered and still remains.
There are many factors at work, supply and demand, the number of cash or big deposit buyers, the overall number of transactions etc but the big one always remains – a house is only worth what the buyer will pay and the seller will allow it to go for. Many people forget the second part of that statement.
We are in a position at the moment where sellers can afford to wait and hang on. They have valued their house and will not sell for less unless forced to do so, even if it means waiting a few years.
With job losses coming and possibly higher interest rates there will be downward pressure on house prices. But the government will be working double overtime to try and limit the effects. This may lead to the consequence of government action inadvertently continuing to hold house prices up. After all that seems to be what has happened thus far.
What we may see is a stagnation of prices where inflation gradually erodes the value until traditional stability is reached. That won’t help frustrated buyers today but may be good for the economy in the long run.