Experts warn property prices heading for trouble

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by Kay Murchie

After 2 years of strong house price inflation, the property market seems to be slowing down.

Evidence from Bank of England shows mortgage approvals for homebuyers were down in September to 102,000, the lowest level for 2 years and 10,000 below the recent monthly average.

Furthermore, the Royal Institution of Chartered Surveyors (Rics), were one of the first groups to notice the nineties property crash, Rics recently published a report showing there were indications that even the strong London market was cooling.

There are many assumptions as to why the property market is cooling. Many believe it’s the 5 interest rate hikes that have been applied by the Bank of England. Others believe it is the tightening of lending criteria, particularly those dealing with poor credit borrowers.

Furthermore, the events at Northern Rock have severely dented public confidence. The arrival of Home Information Packs (Hips) hasn’t helped as these have been subject to criticism by many.
A major issue is that property prices have continued to increase to levels unaffordable to many and there is a limit to how much people can repay.

Experts ranging from Alan Greenspan, the former US Federal Reserve Chairman, and Kate Barker, the Bank of England housing guru have all warned that UK house prices could run into trouble.

Hometrack, the property information specialist, said prices fell for the first time in 2 years, dipping 0.1% in October and that yearly gains had slipped back to 4.4%.

Nationwide’s figures for October showed a shock monthly increase of 1.1%, but the building society’s chief economist, Fionnuala Earley, said it would be ‘misguided’ to read this as a sign house prices were not weakening.

The Land Registry said the average home in England and Wales was £183,896 in September 2007. Halifax said the average cost of a UK property was £198,500, with its measure including Scotland and Northern Ireland in its statistics.

No matter what index you study, the cost of property has increased significantly since Autumn 2005. Prior to that, property prices had been relatively subdued for 12 months. Halifax shows an 18% rise while the Land Registry shows a 15% rise in the cost of a home since October 2005.

According to the Halifax, the average house price is £198,500. Furthermore, the Council of Mortgage Lenders figures show mortgage interest repayments stood at an average of 16.2% of income in the second quarter of 2007. This is the worst affordability levels in 15 years, when the bank rate was at 8.88%.