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There are a number of potential triggers that could be helping the housing to crash.

First of all the credit crunch has been making debt much more expensive in the past few months. As well as being more expensive, borrowing is also a lot harder to come by, with few of the cheap loans that were available last summer.

Secondly the buy-to-let sector is also heavily exposed after having grown out of almost nothing a decade ago to accounting for almost 8% of all mortgages today.

Thirdly, Britain like the US, has its own sub-prime or ‘bad debt’ housing sector, with such a loosening in credit standards in the past few years that as many as 5% of mortgage borrowers are using 50% of their pre-tax income to service their debt.

The UK has many mortgages with ‘teaser’ rates - mortgages that let borrowers get low repayments for the first couple of years and then move onto the more expensive standard variable rate (SVR). There has also been a massive rise in the more amount of interest-only home loans taken out which rested on the assumption that the capital value of property would always rise.

Unemployment levels are starting rise, along with the cost of living. Fuel and food costs have both rocketed, leaving many households pushed to the limit. With more repossessions taking place, the housing market is seeing a drop in asking prices, as banks try to recoup their losses.

Britain is now facing a very real possibility that the property market could go through a painful correction at best or at worst a full blown price crash that could potentially wipe as much as £50,000 off the value of the average British property in the coming years.

There are a number of reasons for justifying the realistic probability of a house price crash. First of all there is the fact that the average home in the UK now cost roughly £200,000 – that’s nine times the average income of the UK which is currently at £22,000 per year. In the mid 1990s the average price was only 4.5 times the average annual income, and this was at a time when the country was recovering from low unemployment, and cheap loans were not on offer to everyone.

Now that the cost of living is rising so sharply, fewer people can afford to consider moving up the property chain. With fuel and food prices going up and home loan rates so high, more families are looking to cut back, rather than expand.

One argument against the crash theory is that Britain is a small island with a large number of people seeking homes because of immigration and smaller family units. The argument basically goes that there is very strong demand for housing while supply continues to remain very weak, thus pushing up prices.

However this paints a false picture, according to the Home Builders Federation. The HBF say that the stock of new properties built since mid-2004 have been more than adequate to meet demand. Also if houses were in such short supply than we should also have been witnessing a large rise in the cost of renting a property however this has not happened until recently.

In the past 10 years house prices have gone up by 10% a year while the cost of renting has increased by only 3% or roughly the same pace as the rise in the cost of living. This is all about to change, however, as thousands of buy-to-let investors pull out of the housing market, leaving a smaller pool of rental properties.

Despite the coming increases in rents, investors with buy-to-let mortgages are facing the same high interest rates as the rest of the housing market and are unable to wait for rents to rise for fear of defaults and repossessions.

House price growth is beginning to slow due to last year’s interest rates rises according to Halifax.

While the high interest rates have been slowing the growth in the housing market, they have also been making mortgage repayments for many home owners much higher as they have to cover the cost of higher interest rates on their loans.

Last month their was speculation that interest rates would be put up once again by the Bank of England, however last Thursday they decide to hold interest rates at their current levels because of a growing concern about the financial markets. This news should come as a huge relief to millions of homeowners who have seen their financial situations worsen in recent months.

January house prices showed a definite drop, showing that the housing market has gone past the point of a slow down into a definite fall. This is a definite sign that the Bank of England’s plan to bring down inflation is working. It does however leave many in fear of a negative equity situation should prices continue to drop.

However a crash is generally not expected because of the high levels of employment across the UK as well as a shortage in the availability of housing. So if you are one of the many homeowners who took out an interest-only home loan, you will need to give up any hope of moving for the meantime, until prices rise again.

There is no escaping the fact that house price growth over the past ten years has been phenomenal and up until recently there was very little sign of it slowing down. So it may not come to you as much of a shock to hear that the average cost of a home by a first time buyer is expected to cost more than one million pounds in less than 20 years from now.

This news comes despite recent suggestions that there has been a slowdown in house price growth. This slowdown is a result of the five consecutive house price rises over the past twelve months as well as other factors such as the bad summer weather we had and the introduction of home information packs. Also there is currently a shift away from sub-prime lending by banks as they try to calm the financial markets which also went in for a bit of a roller coaster this summer.

According to Stroud & Swindon, by the year 2024 first time buyers will by typically spending one million pounds on their first home if property prices continue to follow there long run pattern of growth. However those of us who live in areas where house prices are higher than average could be facing a seven figure sum for our first home much sooner. London for example is expected to surpass the one million mark by 2018. The south east and south west are generally expected to follow shortly afterwards.

Whilst this news may not seem so bad for those already on property ladder, for anyone struggling to find a house affordable even on a huge five-times salary home loan it is disastrous. Equally, people already facing loan arrears may never own their own home again once repossession has taken place.

It seems like everything is stacked against first time home buyers. They are being let down by the Bank of England and their interest rate hikes, they are let down by government policy, and they are let down by their own agents.

Liberal Democrat Housing Spokesman Paul Holmes MP said:

“The Prime Minister’s announcement is too little and ten years too late. As Chancellor he created a housing crisis of shocking proportions.

“Since 1997 council housing waiting lists have soared with an extra 600,000 households waiting for a home. First time buyers now use more of their income buying a home than at any time since 1992.

“Last year 25,000 social homes were built in the UK compared with at least 56,000 needed to cut waiting lists.

“Allowing councils to build council housing again would be one very simple way to tackle this crisis.

“We also need to deliver more affordable housing. The Government should hand the 550 sites owned by government departments to community land trusts.

“That would ensure the homes built on them would remain affordable into the future. Government schemes currently only guarantee their affordable homes are affordable the first time they are sold.”

This means that, as usual, investors with money can learn how to get a hold of these properties on bulk-buy property loans or cheap mortgages and flip them, buy and sell quickly, to earn a nice profit, leaving first-time buyers in the same predicament they are in now. Many potential homeowners get no further than enquiring about a home loan only to find they cannot expect to earn enough within five years, by which time property prices will have risen further.

Just a few weeks ago the government announced its intention to promote long-term fixed-rate mortgages, after which Nationwide announced its new 25-year long-term fixed-rate home loan deal where borrowers would get a fixed rate for 25 years and could withdraw from the deal after ten years without any penalty.  However, according to new figures from Abbey more than half of UK residents state that they will not consider signing on for a long-term fixed-rate mortgage with less than one in four claiming that they would consider taking out a 25-year loan.

The research showed that fifty-four percent of Britons would definitely not take out a 25-year fixed-rate deal.  Some believe that it is due to the fact that some consumers are unsure about the future with some believing that the interest rates will drop, meaning that they would be stuck in a high interest rate deal for a number of years.  About a quarter of those involved in the research said that they did not want to be locked into a deal for an extended amount of time.  There is an increasing demand for five-year and ten-year fixed deals, however the demand is not so big for the 25-year fixed-rate loans.

Despite the amount of people stating that they would rather not sign on for a long-term fixed-rate mortgage, there were a large number of people who state that they would consider a 25-year fixed-rate deal.  Around 86 percent claimed that they would consider a long-term deal because of the security that it offers, as the borrower would be aware of any upfront costs.  Many of those opting for a long-term fixed-rate deal believed that the interest rates would continue to rise and state that they would get a good deal by signing on for a mortgage now.

A new report released by the Ernst & Young ITEM Club has just forecasted that housing price growth will slow down to below 1% by the end of 2008. This is a very serious report according to the Daily Mail as the ITEM Club is one of the best respected financial think tanks in the City, and this is the first time that they have raised fears of a housing slow down.

While the news may appear welcome to many who are trying to get onto the property ladder, the bad news is that the reason for the slow down will be the high cost of home loan repayments once the base rate hits 6%, which it is expected to do sometime in the near future.

The report has warned that house prices are almost 20% over valued and that such levels are simply unsustainable as interest rates continue to rise. While the report does not say that there is going to be a crash in the market, it does warn that growth will simply stop or drop to below inflation levels by the end of next year.

Whilst first time buyers might be grateful for a freeze in prices, existing homeowners may be dismayed.  Many homeowners have bought property using interest-only loans, relying on a higher resale price to give them a return on their investment. With prices on a freeze, these homeowners have made no repayments towards capital and can see no prospect of moving up the property ladder until prices rise again.

The report also points out that the Treasury is making bumper returns with income from taxes expected to rise by almost 10% this year. This means that people are paying a higher proportion of their income as tax then any time in the previous few years. Over all, the report has been taken very seriously by most commentators.

Gordon Brown’s controversial tax credit scheme is a failure by some standards. It has been defrauded by an estimated £3bn but it has also made overpayments in excess of £6.6bn since it being introduced in 2003, according to the National Audit Office.

Alistair Darling, the chancellor, yesterday said that “it is unacceptable to have these high levels of error.”

Sir Menzies Campbell said the party believes in “fairer, greener, not higher taxes.” The party estimates that a single-earner household with an income of less than £46,000 will be better off under the proposals but dual-income families will suffer if they surpass an income of £68,000.

Edward Leigh, Tory chairman of the Commons public accounts committee. He said: “The reputation of HM Revenue and Customs for competence looks increasingly threadbare.”

“There are no winners here. To the taxpayer it means a torrent of wasted money. To vulnerable families who have been overpaid, it means a future of almost certain hardship repaying debt to the government. Revenue and Customs mistakes do not end here. The department turns out to have provided incorrect advice on the taxation of small pensions. The amount lost to The Exchequer each year is running at £135m.”

Proposals to cut 4p from the basic rate of income tax, to 16p in the pound, the lowest rate since 1916 have been introduced. Government pledged to remove loopholes exploited by the rich and foreign millionaires.

Debt charities are encouraging people suffering from debt to review their taxes and make sure they are not losing a refund. Many families are buckling under the strain of high mortgages and personal loans taken out in easier times. For these people a tax break could be the difference between solvency and bankruptcy.

Homeowners with monthly home loan payments ranging from an average £750 to £1500 a month are anxious to see if they have a refund owed from their taxes.

The National Audit Office (NAO) report states that processing errors by the Revenue led to £157m of overpaid taxes in the last year. Vulnerable people including pensioners, single parents, and people on disabilities are disproportionately affected. The report also stated that £125m of tax has been underpaid.

Whitehall’s watchdog blamed errors on the complexity of processing tax resulting from people changing jobs more often, and manual processing.

Shadow Chief Secretary to the Treasury Philip Hammond said: “This level of Revenue error in calculating people’s tax is completely unacceptable.

“With such a dismal track record, it beggars belief that the Revenue is asking for powers to deduct tax it claims is owed direct from bank accounts.”

Martyn Evans, director of the Scottish Consumer Council, said: “We expect a key public service to do significantly better than this. We also expect refunds, with interest, to be issued as quickly as possible.”

John McFall, Labour MP for West Dunbartonshire, , said: “It is important the utmost care is taken with those on low income who are vulnerable. I would hope lessons will be learned from the National Audit Office report.”

While many people are reporting the main focus of the article, there are some limitations. One, limitation states that the authority will only be able to withdraw the money if the person has the funds, but refuses to repay. This could be a shock to consumers who have recently taken out secured loans for home improvements only to find the money snatched before the bills are paid.

Economic data suggests that interest-rate will increase. But some indicators, including manufacturing output and mortgage lending, fell back.  This will mean that the economic committee votes will continue to be as close as the one experienced on July 6.

Many consumers, especially people who are holding non-fixed rate home loans are anxiously watching the interest rate increases.

Trevor Williams, chief economist at Lloyds TSB said:

“The closeness of the balance of economic data this month suggests that any rise above 5.75% will have to be driven by worsening inflation and faster growth,” he added in a recent note to clients.

For many, this may mean the difference between paying bills and ruining their credit rating by defaulting on mortgages and personal loans.

Bear Stearns chief European economist David Brown, expects an increase to 6% before the end of 2007.

“U.K. growth is probably running too strong, domestic demand is overheating, credit demand is overcooked, the housing market is booming and the economy is bumping up against capacity constraints,” Brown said.

“The Bank of England looks set to stamp it out. The only doubt in the market’s mind is whether the bank is going to stop at 6%,” he added.

the British Retail Consortium warns that the latest interest rate increase “could be a rise too far,” saying policymakers were “wrong to regard the consumer slowdown as tentative. Recent reports from several major retailers make it clear that the slowdown is real and likely to intensify.”

Consumers are not the only ones who are watching the interest rate increases.  The mortgage lenders are running out of options to attract first-time homebuyers and increase their profits.