A quick property sale may be more of a challenge as prices slowly unwind.

House price drops typically only become significant when there are two or more coupled destabilising factors affecting house pricing. For example, in 1988-90 there was a monetary crisis leading to high interest rates, coupled with increasing unemployment because of the economy.  Until recently, we have only seen one factor affecting house prices, i.e. increasing interest rates.  Initially the Northern Rock credit crisis did not seem to have a visible implication for house pricing, but now this is resulting in a systematic change in lending structures, which can be counted as a second de-stabilizing factor pressurising house pricing.

The Northern Rock debacle has started a chain reaction that will ratchet up downward pressure on house prices.  This is happening because mortgage lenders are removing their 100% and 95% mortgages.  This has a number of effects which are being reported on already.

Firstly, there are now a large number of people that have 100%+ mortgages which will have significant rate increases when they come to the end of the fixed/discounted period.   They will have to work hard to cover any additional payments, or face repossession, as they will effectively be in a negative equity trap and unable to re-mortgage with any other lender.  This will increase the number of repossessions across the UK.

Secondly, by removing these larger Loan To Value deals, it will mean that there is a tranche of first time buyers that have been planning to buy a property this year or next, who will now delay their first purchase a few years so that they can save the additional deposit.  This will reduce the number of first time buyers coming to the market and hence put pressure on the volume of sales and new house prices.

Thirdly, as lenders are more reluctant to lend above 90% of the value of a property, the incentive techniques used by property developers to assist new buyers getting enough mortgage are being scrutnized and exposed as vehicles for falsely inflating house valuations.  Being less accommodating to such techniques will reduce the amount anybody can borrow against a new build and will slowly lead to a reduction in new build prices.  Incidentally, these valuation inflating vehicles are the reason why people who bought new builds a couple of years ago cannot recoup their monies at the moment.

Overall, these three effects will slowly increase the pressure on house pricing over the next year to 18 months by reducing property valuations for new builds, and reducing the number of first time buyers entering the market as affordability temporarily slips out of reach for a percentage of first time buyers.  Luckily the government introduced HIPs which has reduced the number of sellers and have now reduced interest rates, both of which should mean we see a stagnation of actual prices, rather than a decline like the US.  Though, after taking into consideration inflation, this effectively means a real price decrease of 3-4% over a year period.

We believe the biggest impact for a seller will be a significant increase in the time to sell using estate agents.  This is a real cost in a stagnant market.  For a fast house sale, contact Fairdeal Homes for a valuation, as this may be the best opportunity for sell your home quickly.