A huge number of homeowners in the UK are set to be hit by flattening house prices and rising mortgage payments, thus putting them at risk of negative equity - which is caused by the market value of a property falling below the outstanding amount of a mortgage secured on it. The stalling market in relation to house prices is likely to be hit even further due to rises in mortgage payments, which is due to a potential rise in interest rates. This has severely affected the housing market, and has made it even more difficult for first-time buyers to secure a mortgage that is fixed and secure.
However, despite the rise in interest rates, homeowners still have options available in order to save thousands of pounds on their mortgages. For example, mortgages can be reviewed and a better deal can be achieved due to fixed rates being at an all time low (E.G. Yorkshire BS offering at rate of 1.69% F over 5 years) OR mortgages could simply be paid off quicker. In order to assess the current situation of the UK housing market, house prices need to be considered. It's important to note that house prices are NOT falling, yet that they are not rising as quickly as they once were. The ONS (Office for National Statistics) claimed that house prices dipped from a 5.3% increase in April 2017 to a 4.7% increase in May of the same year. In addition to this, Halifax found that annual growth had fallen even further to 2.6%, which has been the lowest rate since May 2013.
Why is this happening? Experts claim that this slowdown is purely down to the populous not being able to afford higher prices. What does this mean? Consumers are struggling financially and are becoming less inclined to purchase houses. Will house prices fall in the future? This is unlikely to happen, as a lack of houses of the market (and being constructed) will prevent any plummet in prices.
Next, it's also key to assess the effect that a rise in interest rates will have on the market. When interest rates go up, homeowners' biggest problem is that mortgage repayments increase if they aren't on a fixed rate; which can be a major hindrance. Furthermore, a second problem for homeowners is that when interest rates rise, mortgages rise, and so people are more cautious when buying houses. This often leads to houses taking very long to sell, which leads to price reductions. This has prompted the Bank of England to take action, as they are set to meet this week (week beginning on Monday 31/7/17) in order to potentially increase the base rate from 0.25%.
Lastly, will this result in many people succumbing to negative equity? To put it simply - the answer is no. However, many people are still in negative equity from the 2008 Financial crisis, which begs the question as to whether how many people will actually suffer from this 'slump' in the housing market. To conclude, the shape of the UK housing market is not 'bad' by any stretch of the imagination, however there is potential for a crisis to happen if things were to get out of control.
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