House prices in the UK are starting to fall after 8 years of stable growth. This is according to recent house price indices.

At the moment prices are still fairly stable, but market fluctuations have been reported. Is this a temporary blip in the market or is this the start of values plummeting?

Property prices are a very emotive subject. Some investors and owners want prices to rise, while others who are trying to get onto the ladder want to be able to afford a home and pay it off in a reasonable time.

So, how can we start to predict what will happen in the market? Well, for property prices to crash you need a few ingredients. But what are these?

A surge in long term unemployment

Even with furlough still in place we are already seeing major companies laying off staff in the thousands. Furlough is due to end soon and unemployment is likely going to be a huge problem in the UK with more companies losing staff and some large businesses calling in administrators. We do not know yet the exact size of the unemployment issue, but it is likely to be substantial. This alone could be a strong enough reason for house prices to fall as it would create “forced sellers” and reduce the number of potential buyers.

Credit restrictions

So, what does this mean? Well, its whether mortgage lenders will tighten up their restrictions and their willingness to lend. Mortgage approvals have dropped massively. A quarterly change -67.7% and annual change of -39.4%

This drop has its reasons backdating to lockdown. However, with the market now technically fully open again transactions and lending are still significantly down compared to previous years.

So, let us look from the lenders point of view. Firstly, if they are worried about falling property prices they will lend to buyers with the biggest deposits. This will ensure that if prices drop, the buyers deposit gets hit first which limits their risk. So, mortgages that require a larger deposit are still at fairly good rates. This is also good news for some owners trying to re-mortgage if they have enough equity in their home.

First time buyers and those with low deposits will find it harder to buy as lenders increase restrictions with many loopholes to jump through. This is their way of making things difficult as they do not really want to lend to higher risk borrowers.

Although, I do not think we will see enough tightening of credit restrictions to create “forced sellers” here. No one is likely to be forced to sell by rising mortgage rates.

Alternatively, if you want to sell a property, you might struggle to gain the price you want.

Prices for cardiff homes

We are going to see property prices dropping in Cardiff, but we are not going to see an avalanche in values we saw in 2008 property crash. The market will likely stagnate with fewer properties available and fewer buyers with motivation to move and borrow. Let us remember the crash of 2008 was mainly caused by the property market and inappropriate lending which caused a drastic rise of repossessions and “forced sellers”.

Rental Market

On the other side of things, the Cardiff rental market is very strong. Rents in Cardiff are up 6% over the last 12 months and demand is still at record high levels. This is unlikely to change in the near future. With property prices unlikely to free fall this could still be a good time to look out for potential investment properties and a good opportunity to be punchy with offers.

Rental market Cardiff

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Dan Hopkins

Working with property professionals for over 20 years providing advice and services to all property investors.

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