One of the UK’s leading mortgage advice firms has speculated that the housing market will be deep inside correction territory by the end of 2007/early 2008 if interest rates continue to rise.
The housing market has become incredibly volatile over the last 12 months or so. Interest rates appear to be continually rising, causing many current homeowners problems in selling their properties, and causing even greater problems for first time buyers, who are going to great lengths in order to raise a deposit.
It doesn’t take an expert to realise that house prices are massively over valued at the moment. If you look back as little as 10 years ago, the average home in Britain was valued at around 110,000. That figure is a far cry from today’s average valuations, which stand at a whopping £230,000.
Many experts agree that current market conditions are far from sustainable, although mortgage lenders are certainly doing their best to keep them so. A number of lenders have introduced loan packages designed to accommodate first time buyers with little to no deposits, other lenders are offering home loans up to 5 ½ times the applicant’s annual salary. If the housing market continues to grow at its current rate, the next 10 years would see lenders offering mortgage packages up to 10 times the applicants annual income, which is quite obviously absurd.
Although no one individual or organisation can definitively state that a correction will happen, it’s fair to say that signs are certainly pointing in that direction. On the other side of the coin, it is reported that some “would be” first time buyers are putting the purchase of their home on hold, whilst furiously saving and investing as much cash as possible. Although the actual amount of people conforming to this procedure is small, it is evidence that a percentage of the first time buyer population are expecting changes to occur and/or refuse to pay current house prices.
Ultimately, the strength of the housing market almost entirely rests on the shoulders of first time buyers to fuel its growth. If a significant proportion of FTB’s refuses and/or cannot afford to pay current prices, then a correction is inevitable.
