Adam Boulton
Property Market: When Bad News Is Good
March 28, 2008

350_housesboardedupSky News senior business producer Peter Hoskins

There's been more seemingly bleak news for homeowners today.

The UK's biggest building society Nationwide says house prices are now going up by just 1.1% a year - the slowest pace of growth for 12 years.

The mortgage giant also warns that property values could fall by as much as 5% this year.

And despite the Bank of England cutting the base rate of interest to 5.25% in February, the Nationwide, along with mortgage lenders owned by rivals Halifax and Lloyds TSB, are raising interest rates on some of their most popular deals.

The reason? The 3 Month Sterling Libor Rate - that's the cost of borrowing between banks - has risen yet again today and is now well above 6% - the highest level since the end of last year.

So should we be worried? Well, even though the Nationwide is telling us house prices are likely to fall their chief economist says this is actually a good thing.

Fionnuala Earley told me "I think it's a good time for the markets to have a pause. We couldn't continue to see prices increase at the rate they were, that was unsustainable. So for the market to take stock now and have a pause now - with only a small fall - it would mean house prices would still be higher than two years ago."

And she's got a point. 2 years ago the average price of a home was a little over £162,000. Now it's more than £179,000.

That's a rise of £17,000 or 10.5%.

We know that the value of our homes aren't going up at anywhere near the double digit annual rates of a few years back and they're likely to fall in the coming months.

So, should we be worried that this is the start of something far worse or just take it as part of the natural cycle of the market as many experts tell us?

Written by Sky News Business Team, March 28, 2008


Quite a lot of the property crisis has been caused by "the big bad wolf"! that is the speculative property investor.
A great number of people have been buying up property to let, some own mulitiple properties. The chickens are now coming home to roost and property will be flooding back onto the market, I see trouble ahead in the property sector. It's a case of reaping what has been sown.

I am a mortgage broker and have seen this coming for a long time now. I think if house prices fall it would be a good thing. It breaks my heart when I have to turn people away because they don't earn enough to buy a propery. There needs to be some big changes in the South East. I work in an estate agents office and they are really struggling to accept prices are coming down. some of the other people I know in the industry who are ready to retire say they are extremely worried, its almost impossible to get someone a mortgage these days.

yes a small drop in house prices over the next couple of years is a good thing.this correction should have happened in 2005 but just as it looked like it would prices went the other way and kept on going up well into 2007.
the reasons?who knows,maybe low interst rates,evermore inventive long term mortgages and buy to let investors,encouraged by a government that told us to make extra provision for our retirement because our pensions were not what they were cracked up to be.
whatever the reasons the property market has gone through some kind of collective madness over the past 2 years and now it is time for a reality check.
having said all this the "madness" has only affected certain parts of the country and i believe the probable falls of the next 2 years will show huge regional differences so that prices in 2010 will be where they need to be nationwide and house price inflation will be in a position to carry on at its historical 7/8% annual increase.but who knows ay?

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