- 16
- Apr
The last big crash in the property market happened back in the early 1990s and there are definite similarities between now and then, such as the rapid house price increases that have stretched affordability issues to the limit. Back in the early 1990’s it was high interest rates which started the crash, compared to now where it is simply the massive size of the average UK mortgage.
However there are also crucial differences between now and then. We don’t have the same sort of economic crisis that was affecting the market back in the early 1990s when people had no choice but to sell their homes as house prices fell and unemployment skyrocketed leading to a massive rise in negative equity.
In the 2008 housing market, house prices have already seen some startling drops. In March, house prices fell 2.5% on average across the UK, a plummet not seen for sixteen years in the midst of the 90’s crash. However, these days most sellers have the option of sitting tight and waiting to see what happens rather than having to slash their prices by any substantial amount.
This means that any correction that will happen in the housing market is probably going to be slow and drawn out.
What remains the greatest concern for the health of the property market is debt. Currently the UK borrowers owe somewhere in the region of £1.3 trillion to lenders. This is double the figure of 5 years ago. Currently homeowners are borrowing £1bn per day, despite a slowdown in lending. This figure includes mortgages, which typically is counted as ‘good debt’, as it is secured against property. But there is talk that UK property market is overvalued. Much of this debt is also ‘bad debt’; unsecured borrowing on overdrafts, personal loans, credit cards and hire purchase.
Whilst it has become normal in the UK to take out cheap loans to finance everything from weddings to cars, borrowers are now finding that rising costs of living are making those loan repayments a burden too far.
There are now increasing signs that more and more borrowers are struggling to meet their monthly repayments. Increases in inflation levels could leave many borrowers in serious trouble, despite last week’s rate cut.
