Tuesday, April 29, 2008

Older UK Homes Weather Market Strains Better

Source : The Business Times, April 29, 2008

Personal finance website expects property prices to fall 20% this year

(LONDON) Houses bought four years ago or more are best placed to weather the property market downturn, research shows.

Personal finance website Fool.co.uk expects property prices to tumble 20 per cent this year, taking the average British property value to £153,400 (S$416,000) from £196,000 - the same level as spring 2004 levels.

That means that, on average, people who have bought since then will be sitting on a capital loss.

House-hunt: Home prices have been falling monthly since the end of last year as the credit squeeze has exacerbated affordability pressures after a decade-long boom

Not all, however, will face negative equity, as some will have taken out a mortgage of less than 100 per cent or more of the purchase price.

'It is vital to differentiate between capital loss and negative equity,' said David Kuo, head of personal finance at Fool.co.uk.

'While a capital loss is beyond the control of homeowners, mortgage borrowers can overcome negative equity by reducing the size of their outstanding mortgage compared to the value of the property.'

He added that falling house prices were not 'disastrous', as they would narrow the gap between the value of a property and those further up the housing ladder, making up-sizing more affordable.

The West Country is most vulnerable to a property downturn, while those in Scotland and Ireland are the least so, the figures show, as prices there have more than doubled in the past four years, compared to a 20 per cent increase nationally.

House prices have been falling on a monthly basis since the end of last year as the credit squeeze has exacerbated affordability pressures after a decade-long boom.

The downturn appears to be gathering pace. Halifax, Britain's biggest mortgage lender, said house prices fell last month at their fastest pace since 1992 when the country was in the grip of recession.

The Bank of England unveiled an ambitious plan this week to swap banks' hard-to-trade mortgage assets for government securities in a bid to cushion the economy from the global credit squeeze.

It has also cut interest rates three times since December.

Its scope to deliver further rate cuts, however, is being limited by rising price pressures. -- Reuters

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