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The Great Slowdown Looms

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  • The Great Slowdown Looms

    Not since the early nineties has the cloud of a recession dominated the UK property market so predominantly and as the predicted credit crunch prepares to take a bite out of what has been a fruitful number of years, home-owners are heeding the warnings being offered by the industries experts and press offerings.
    Through-out the boom periods of the last fifteen years the experts have dared to predict of a slowdown, but until now the such happenings have failed to show up. Today however, with the weakening of the $ and American economy it seems what started as ripples have turned into credible waves bearing interest rate cuts, diminishing house prices and soaring levels of repossessions.
    The level of the recession is much debated amongst the leading economists of the UK property market; some believe that high levels of drops are imminent whilst other economists believe a more respectable levelling out of the market will occur to counteract the unusually high percentages of consecutive rises in house prices of recent years.

    So how exactly will a slowdown affect us as home-owners? Below is a summary of changes to expect which the economists do, although rare, agree on and all as a result of the demise of our neighbours dollar.

    Interest Rate Cuts

    If there was a positive to take from the imminent property slowdown this would be it. Interest rates have and will fall in order to combat the slowdown from spiralling out of control. It has been said that the lowered interest rates can save between £15-£20 a month on a £100,000 mortgage. The cuts also serve to coax buyers into lending and keep consumer confidence in the market during some potentially tricky times; this however could be a golden opportunity for the first time buyers who have been waiting on the sidelines for an opportunity to participate in the monopoly of the property market.

    Diminishing House Prices

    One thing the market agrees on is the imminent drops in house prices backed up by recent months of sharp falls. All the big players have expressed concerns offering evidence of continuing falls with Nationwide and Halifax fronting the economic concerns that have echoed in the media. It is thought that the recession is the result of other economic repercussions such as the rising costs of petrol/oil as well as food to name but a few.

    Soaring Repossessions

    The Council of Mortgage Lenders (CML) have made a bold prediction in declaring that there will be a 50 per cent increase in repossessions in 2008, as well as rising levels of arrears and a fall in house prices in real terms. People with high loan-to-value ratios, stretched income multiples or poor credit records could find it harder to refinance their mortgages to more favorable rates on offer and as a result of such home-owners could find themselves racing against arrears and the possibility of repossession and homelessness, the effects of which can be devastating.

    Market slowdowns are nothing new to the UK property market, in fact in any market there are periods of expansion, contraction, recession & stagnation. Known as market cycles, these natural economic progressions can metaphorically be compared to the seasons of the year. Many people believe that when a recession hits the market it is the end of a good thing that will never return, but as when winter dawns it is important to remember that spring will follow. Some winters are longer than others but never the less the spring will come and the property market will soon recover.

    If you've got it, Property Flaunt it! - www.PropertyFlaunt.com

  • #2
    Good article - it must be as I agree with you on pretty much everything.

    The only bit I'm not to sure about is the effect of interest rates. Just how much inflation is BoE willing to accept to try and influence house prices? They have been singanlling that they are prepared to breach 3% again this year, but the longer inflation keeps rising the worse they are going to look.

    I'd expect fairly limited interest rate cuts going forward.