House prices see the largest monthly fall since records began

Published ¤ 07/10/2010 13:58:32

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The September House Price Index from Halifax has seen a 3.6% drop in prices, the largest drop since records began in 1983, knocking over £6,000 off the average price of a UK home.

However, the figure is not as startling as it might first seem. Commenting, Halifax's housing economist, Martin Ellis said:

House price crash "Looking at quarterly figures, a better measure of the underlying trend, house prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010. This rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is therefore far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices.
"A shortage of properties for sale contributed to an imbalance between supply and demand and was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase. Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month on month measure has increased due to the low transaction levels across the market; this underlines the difficulty of getting a clear reading on the current state of the housing market.
"Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices. On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners."
The low interest rate environment has reduced the burden of servicing mortgage debt. Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 30% in mid 2010. This key measure of affordability is at a better level than the long-term average over the past 25 years (37%) and is an important factor supporting housing demand.
However, if, as anticipated, interest rates begin to rise in 2011, then this ratio could well rocket out of control, and many people may find themselves in a position where they just cannot afford to maintain their mortgage. This is increasing the fear that the number of repossessions may well rise significantly once rates do start rising.
This begs the question, when is the right time to fix your mortgage rate. With fixed rates currently at the lowest level for over 22 years, now may well be a good time to consider your options.
To compare the best mortgage rates currently available, just click here to visit our mortgage pages. Alternatively call PKS on the number above.
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