Lower House Prices and Unobtainable Mortgages

In times of financial insecurity and interest rates playing up left, right and center, Britain is said to be heading for a housing crisis not experienced since the 1970s and then later in the 1990s. This is of course in a strong contrast against the expert opinion issued last year that prices will continue to rise at rates slightly above inflation. But now the credit crunch has hit and the low interest rates were in danger of disappearing, introducing high mortgage rates and hitting those first time buyers who took out their mortgages in the beginning of 2007 the hardest. The mortgage approval rates released from the Bank of England indicated a drop of more than 60 percent in a year-on-year analysis. The reality of the matter is that it hasn’t been able to get on the property ladder for years.

A Mortgage stop

The difference is that both banks and building societies have had to stop approving mortgages due to a lack of the funds necessary to finance them. To counter this, they are tapping other source such as overseas investors and shareholders for those funds needed to correct the imbalance created by the credit fiasco and are now only approving loans to those individuals or organizations deemed safe and, naturally profitable. This means that those individuals aiming for the property ladder now have to lay down a deposit of between 10 percent and 25 percent while the value of the loan may not exceed the amount against which the property is secured.

High Unemployment

Another much feared key factor that has already had an adverse effect on the market is that of the unemployment rate. Should it continue to rise while the economy plummets, the housing market could see a number of hard put sellers enter the market, forcing property prices even further down. Evidence of this is already present in figures released from Nationwide with a 0.9 percent drop in house price in June while the unemployment rate has been steadily climbing for the past four months.
But, as always there remains a glimmer of hope, perhaps something that has the ability to create a buzz of excitement among first time buyers for the future: when mortgage approval rates go up, house prices will be at a comfortably affordable price, at least for a while.
This is of course not the first time Britain has been faced with this kind of problem. The question, as always, is: When will it be over?