Difficult times lie ahead for many homeowners
July 1, 2008
With the Council of Mortgage Lenders now predicting that the housing market could see falls of 7% or more over the course of this year, and this has resulted in industry officials warning homeowners to prepare themselves for tough times ahead.
Officials from one debt advisory group stated: “The CML anticipates a 7% year-on-year drop in house prices by the end of 2008. After a decade of rapid growth, this is clearly an unwelcome shock to homeowners. If they’re thinking of moving, they may feel compelled to accept a low offer if they wish to sell their property before prices drop further. And anyone seeking to consolidate their debts with a secured loan or remortgage may have less equity to draw on. They may wish to wait for conditions to improve before they consolidate their debts – and if they can’t wait, they may well have to consider alternative debt solutions, such as a debt management plan or IVA.”
The group also said: “Naturally, people with high-LTV mortgages are particularly worried about negative equity: when a property’s value is less than the debt owed, the owner can be ‘tied in’ to their property, unable to sell it to clear their mortgage debt. Anyone in that situation should seek debt advice without delay.”
Written by Peter · Filed Under News Mortgages
Hi
I think it is too early to say whether the current minor correction will turn into a fully fledged crash. Certainly it will be difficult for anyone to arrange/pay off an IVA using equity-release funds as the creditors will usually be wanting a large share of the equity than current mortgage norms allow (e.g. the Chelsea will only lend 65% LTV for adverse credit).
Homeowners might find some cheer in the news that according to government figures (that lag behind the ones released by mortgage lenders) prices are still up by a small amount over the year in most regions (most strongly in Scotland). This will soon be reversed if the current downward path continues. Avoiding a crash seems to require a number of things to come together:
1. The Bank of England need to realise that the economy is headed for recession, and that despite the current high level of inflation they need to be looking a the medium term and trying to stave off below target inflation in two years time by cutting rates now.
2. The economy needs to avoid a large increase in the jobless total with the knock-on effects of house reposessions dragging prices down.
3. The banks need to return to a sensible lending policy (i.e. not to the madness of recent years).
All of the above are inter-linked of course, and the one that I am most doubtful about is the lending policy of the banks.
Thanks for the post.
Neil