Twelve years on from the 2007 financial crisis some homeowners say they can’t sell their house as the market has slowed owing to the fear of Brexit. It’s true, we are looking at a very different situation in the UK property market. Between 2007 and 2008, we faced what was described as ‘the worst financial crisis since the Great Depression of the 1930s’. Sounds dramatic? It was! One of Britain’s largest mortgage lenders, Northern Rock hit the wall and there was a ‘run’ on the bank with customers clambering to get their money back out.We had never seen anything like it before.
The global financial crisis originated from the high default rate in the US’ subprime home mortgage sector. But how have things changed, and is it for the better?
2007 – 2017 Average Comparisons
- Interest Rates
The Bank of England base rate back in July 2007 was 5.75%. Contrast that with the 0.25% rate we have today. Interest rates are currently the lowest they have ever been. For borrowers, the present situation is highly favourable to that of 2007. With such low interest rates, national homebuyers will today pay less on what they borrow. However, for those with substantial deposits on account looking for a sensible return from banks, low interest rates offer minute rewards. Savers will receive a fraction of the interest they were getting ten years ago.
- House Prices
With confidence returning and lenders feeling more bullish we have seen steam return to the UK housing market. Homeowners have all but stopped dinner chats over the need to sell house quickly. Based on figures from the UK House price Index, the average house price has increased by 4.9% in the last twelve months alone. This means the average value of a property in June 2017 stood at £223, 257. This represents a 0.8% increase from May 2017 and a whopping 17.63% increase from ten years prior. In 2007 the average property value stood at just £189, 786.
What does 2017 look like for homeowners that can’t sell their house?
Most people are aware that buying a house certainly has its fair share of ups and downs. Following the General Election and the EU Referendum result, many home buyers are now confused about where this leaves them. And sellers worry they can’t sell their house.
The Bank of England is attempting to secure a balanced and growing economy, creating more employment. But big questions remain. Are the effects of Brexit going to have a positive or negative impact on the UK property market? It is debated as to whether availability of housing stock will increase or lessen as a result of Britain leaving the EU. It will definitely be affected by how immigration rates change, and whether more people choose to leave the UK.
First time buyers – Are they blissfully unaware of today’s risks?
The supply and demand of the UK housing market is unbalanced, with simply too few properties for the number of home buyers. Fewer properties but a high demand consequently drives up the prices. This means buyers often have to borrow 4 or 5 times their salary just to get on the property ladder. As a generation of first time property buyers who haven’t lived through a period of high interest rates, is there danger ahead? By stretching themselves just to get on the property market, they may face high risks in the future. Borrowing huge sums of money whilst interest rates are low certainly seems like a good idea. However, some national homebuyers may be unaware that when interest rates rise, under a variable product their mortgage payments will also increase significantly. Unfortunately, net disposable income won’t necessarily do the same, potentially forcing repossession or bankruptcy as a result.
Homebuyers should consider the risks of borrowing money in order to buy a new property when facing the difficulty that they can’t sell their house. If interest rates increased would you be able to keep on top of the mortgage repayments? Renting should definitely be contemplated if the answer to that question is no.