In the short term, UK House prices are likely to stagnate and possibly even fall. There are concerns that many have taken out mortgages they may struggle to repay. This problem is exacerbated by the US subprime crisis which has caused the cost of general borrowing to increase. The fears over the subprime mortgage sector have caused British bank lenders to recently scrap their 125% mortgage deals.
Other concerns over British house prices is the fact that the ratio of house prices to income have increased. Basically house prices have risen faster than CPI inflation and wages. Therefore, there is an increase in the number of potential homebuyers who cannot afford to buy a house.
Combined with the difficulties of getting mortgage we are likely to see a fall in demand.
However, there are still some factors which may cause house prices to rise in the Long term.
Forecast for Rising House prices in Long Term
- Expanding population. Immigration from eastern europe is creating an inflow of young people looking for some where to live
- Expanding number of households. With more people living alone, there are more households. Therefore, demand for housing has increased faster than the population has increased
- Shortage of supply. In this post Housing Supply and demand, we can see how the government is failing to meet its targets of building enough houses. This shortfall in supply, could mean prices are kept artificially high, even though many cannot afford to buy them.
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