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Stuck between a rock and a hard place

16 October 2007

Undoubtedly the biggest news in the property market of late has been the Northern Rock crisis. What was most telling was how quickly public confidence can be shaken so badly! Would anyone have predicted this situation five months ago? The crisis seems to have stabilised now and the short traders in the city have made a killing on share trades. Nobody actually believed that the banking system would collapse did they?

We all know that the growth of the property market is slowing down. This coupled with the steady rise in oil and food prices and the subsequent rise in inflation means a reduction in disposable income. This means that landlords, banks and building societies will be able to take less rent or mortgage interest as a proportion of an individual’s salary. Prices and the cost of housing should fall overall against earnings.

movewithus Director Robin King said, “We have enjoyed ten years of house price rises on the back of sustained low inflation and correspondingly lower interest rates buoyed by a strong economy. The world has turned and we face inflationary pressure on all fronts except housing. If people aren’t earning significantly more money and worse still if they begin to lose their jobs, we will see the overall cost of housing fall.”

Not all of the predictions are bad news. Housing near to better paid employment or better schools will always be scarcer and so prices will remain relatively high. Immigration has brought aspiring young families to the UK who will look to find more permanent housing and take up some of the supply.

The message; make sure you have houses to sell in popular areas if you want to continue making sales in worsening market conditions.