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02/04/07 - Warning for UK Housing Market |
The housing market is heading for a major fall next year
according to figures produced for The Daily Telegraph…
With property prices at their most overvalued and inflated level in more than 15 years, soaring prices are putting
properties out of reach for many people. The warning coincides with news that the average mortgage rate has reached
seven per cent, with millions of households paying well above the Bank of England's 5.25 per cent.
With the Bank expected to increase borrowing costs for the fourth time in a year - possibly as soon as Thursday -
economists have sounded the alarm over the market's strength. This comes after the revelation that disposable
incomes rose at the slowest rate in 25 years in 2006.
Gordon Brown is likely to be blamed for much of the problem, since high taxes are one of the key reasons many
households are struggling to pay mortgage bills.
Lowest level of affordability since 1991
The Daily Telegraph/Lombard Street Research Housing Affordability Index has shown that house prices are rapidly
outpacing wage increases.
Affordability, a measure that compares house prices and mortgage costs with incomes, has plunged by seven per cent
over the past 12 months. The barometer, in which 100 points represents the average comparative cost of house prices
since the early 1960s, has now fallen to 91.2 points. It is the lowest level of affordability since 1991.
Diana Choyleva of Lombard Street Research said: "We are now clearly at the end of the house price boom. We think
there will be a correction next year, although it is unlikely to be as severe as the last crash."
News of the impending slowdown will disappoint many households, but for the millions who are effectively locked out
of the housing market because of record prices, it comes as a relief.
Ms Choyleva said: "The Bank of England may have little choice but to raise interest rates further. 2008 could be a
difficult year for the UK housing market."
Potential slump on the cards for years
Economists have been warning of a potential housing market slump for many years, but prices have continued to rise.
However, interest rates have now reached their highest level for six years, prompting experts to warn that a
correction seems highly likely soon.
The Bank of England's Governor, Mervyn King said last week that the housing market was starting to slow. He also
said that it seemed likely that there would be falls in house prices in the coming years.
Amit Kara of UBS financial services group warned that if the Bank raises rates again it could cause a more intense
slump. "Tentative signs of cooling have already emerged and these are expected to build over the next few months,"
he said. |
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