UK housing prices are currently at a record low since the housing slump of the 1990s. The current housing market crash has been driven by the low availability of credit for new mortgages, especially first time buyer mortgages. The low housing prices reported in the fourth quarter of 1990 were due to high levels of unemployment coupled with the high interest rates. Regardless of the reasons behind the current housing crunch, reports suggest that the cost of housing in the UK is not expected to rise any time soon. Rather, the speculation is that the prices will continue to fall on average 2 per cent per month, making any quick recovery from this slump unlikely.
The reported annual fall of housing prices has reached 10.9 per cent; the first time a price decline of this intensity has happened since 1983, which was the last time price decline was in the double digits. This decline began first with price drops in the London housing market, with the price of prime country real estate, and other rural areas following soon thereafter. The decline in the market price of UK housing stems from many different factors, these factors are also currently affecting the overall UK economy.
The leading cause of the housing crunch comes from a shortage of Mortgage Finance available in the UK. After the United States experienced a large amount of defaults on sub-prime mortgages, the mortgage approval process became much stricter worldwide. In addition to the lack of credit available, the ratio of housing prices to income is at an all-time high, and most first-time buyers are unable to afford housing prices, despite the recent plummet in house prices.
The government unfortunately is not doing much to help stimulate the current state of the housing market. A change to the Stamp Duty is the one change they have imposed, however, it will seem to be a short-term fix to help level the plummeting lower market. In early September, the UK government announced an alteration to the Stamp Duty changing the threshold for the purchase tax from £125,000 to £175,000. This change is to aid buyers through these tough times and also make purchases more attractive by the decreased tax, therefore helping sellers who are experiencing some difficulty selling their homes.
According to Halifax, despite the welcomed help from the government, the market prices are still being driven down by both the mortgage crisis and also by the pressures on individual incomes. The income pressures are coming from inflation and the surge in the price of oil, which is currently causing consumers to cut overall spending. Sources also suggest market conditions are to remain in a slump even with government assistance. Capital Economics stated that the continued drop in prices will soon negate the assistance provided by the changes to the Stamp Duty. The potential savings the Stamp Duty will provide, approximately £1750, will soon be less than the savings induced by price drops, which are averaging £2,900 per month.
Even though the Scottish housing market remains to be the strongest in the face of the housing market crash, the UK is experiencing a great slump in the overall economy. The economy stopped experiencing growth beginning in the April-June quarter of this year. The lack of growth coupled with the continued market decline shows an increase in unemployment, an increase in inflation, and a decrease in the prices of the housing market. Unfortunately, it is speculated that the state of flux that the UK is currently in is not expected to see a recovery before the market first falls further.