House Price Rises – A Cautionary Tale

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                      House Price Rises – A Cautionary Tale
In general, property prices appear to be rising. Between January and May 2006, the uplift in
house prices across the United Kingdom averaged 4.4%. In the event that this trend continues,
then the yearly rise will be 13%. This will put the average house price at almost £195,000.

The Council of Mortgage Lenders confidently expects 1.2m property sales to be completed this
year. This is a rise in the 970,000 previously predicted. They also expect mortgage loans to be
£10billion more than they had thought, at a total of £85billion.

All this sounds very upbeat and encouraging. New loans approval for house purchases in
March 2006 was more than 25% higher than for the same period 12 months earlier.

However, first time buyers are finding it especially difficult to get on the first step of the housing
ladder and in some areas, particularly the South East of England and London, prices have
been fairly static. First timers are needed to set off the sequence of events from starter homes
upwards.

In many other parts of the country, including the north of England and Wales, house sales
have continued to be buoyant, levelling out the average price of homes. According to the
Halifax Building Society the rate of growth is expected to even out across the UK and it is
thought that prices will rise to in excess of three times the predicted level during 2006.

Capital Economics, the economics consultancy, have been predicting that property prices will
start to drop in the UK market for the past few years and was of the opinion that prices would
drop by 5% in 2006; however they appear to have been over cautious according to the above
figures are correct. There is some cause for caution though.

The Council of Mortgage Lenders has revised its forecast regarding interest rates and now
expects the cost of borrowing to rise, maybe from 4.5% to 4.75%. Their economist, Jim
Cunningham, thinks that demand should remain vigorous in the coming months but says that
confidence and activity are closely linked with interest movements and predictions. The result
of this could be a more modest rise in house sales after the recent highs. He does, however,
look forward to a better outlook for 2008.

Mortgage lenders are becoming increasingly more cautious regarding their lending levels and
the size of mortgages they will fund. This in turn limits the budget of the potential buyers.

The problem is that interest rates have been exceptionally low in recent years, in fact at their
lowest level since 1955 and this has created an exaggerated level of debt. A rise in the
mortgage rate may result in more people falling behind with their mortgage payments and an
increased likelihood of their homes being repossessed.

Some caution is needed in this market. Purchasers who have taken on large loans on the back
of the rise in houses could find some of the above factors worrying. If interest rates rise there
could be an adverse effect on house sales and people could find themselves with increasingly
expensive mortgages whilst there may be some stagnation in the property market, if not actual



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                     Discover 101 Amazing Real Estate Tips and Secrets

falls in prices.

It seems to be a time to exercise some caution. Mortgage debt can creep up and your house
could just be slightly less of the asset in once was. Take care.




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