Author Lauren Howells

It can take years to get together the deposit for a house, especially in tougher areas of the country – such as London. However, new research from building societies and banks is starting to show that the UK property market is cooling off in terms of falling house prices thanks to a variety of factors. But are things all that they seem? Let’s take a closer look.

Falling house prices

First time buyers – rejoice! It has been revealed that house prices have fallen for the third consecutive month, and are now nearly £3,000 below what they were in December 2016. This news comes as more and more evidence is mounting up, showing that the property market in the UK is slowing down – much to the delight of many first time buyers looking to get a foot on the property ladder.

When looking at the average UK property, it was shown to have fallen in value by between 0.1% and 0.4%, according to data from the Halifax and Nationwide, respectively. Both Halifax and Nationwide have shown downward turns for property value for the last 3 months, including April.

Halifax housing economist Martin Ellis said:

“Housing demand appears to have been curbed in recent months due to a deterioration in housing affordability driven by the sustained period of rapid house price growth during 2014-16. Signs of a decline in the pace of job creation, and the beginnings of a squeeze on households’ finances as a result of increasing inflation, may also be constraining the demand for homes.”

House prices were at an all-time peak in December 2016, hitting an average value of £222,190. However, according to the Halifax, the average price fell from £219,788 in March down to £219,649 in April. The annual rate of price inflation remained at 3.8% in April, Halifax said, the lowest rate for four years.

Some experts have started to welcome the news of falling house prices. Jeremy Duncombe of the Legal & General Mortgage Club said:

“Today’s reduction is not necessarily a bad sign for our housing market. What remains unchanged is the staggering gap between house price inflation and wage inflation. Tackling our nation’s housing shortage needs to be at the top of the agenda for all political parties.”

Falling rents

It appears that house prices aren’t the only thing in the property market that are falling. Luckily for the majority of Londoners, rents are also falling for the first time in eight years, according to an analysis done by the letting agents HomeLet.

This news further reinforces the view that the property market is cooling down for both tenants and homeowners. When looking at the overall picture for the UK, some regions are still showing increases in rent, but the average for the country is now a negative figure – which is good news for renters all over the country.

Lettings agency HomeLet discovered that rental inflation figures reached more than 5 percent in 2016, but since then, they have consistently declined. This means that renters all across the country are able to get more bang for their buck. The most significant decline in rental figures occurred in London, where they dropped by 3 percent since this time last year – great news for those living in a city where rent is already sky high.

Many landlords are being told the return on their investment is forecasted to fall over the next 10 years. Shawbrook Bank’s ‘The UK Buy-to-Let Market’ report predicted that the return for landlords is expected to drop from an average of 5% in 2016, down to around 3.5% by 2027.

This may mean that, in conjunction with the recent slate of Conservative laws surrounding buying Buy-to-Let properties, those who would previously invest in property will invest their money elsewhere – freeing up more properties across the country for first-time buyers.

Mortgage prisoners

One of the negative side effects of falling house prices, however, is the very real worry of mortgage prisoners. Mortgage prisoners are people who had borrowed heavily towards the end of the housing boom, and only put down a small deposit on their property, found themselves in a sticky situation.

Prices on the housing market are set to fall

As a result of the crash, lenders needed to tighten up their affordability checks, leading to many borrowers being refused new deals.

This meant that many first time buyers were stuck when their fixed term mortgages expired after a few years. They were then moved onto the more expensive standard variable rate mortgages (SVR), being unable to get a better deal by moving somewhere else.

It is now predicted that the same could happen, as banks are looking at targeting first-time buyers with smaller deposits again. Fierce competition between banks is encouraging them to target first-time buyers, promising small deposits, as this is profitable for the banks.

It is estimated that of the three million households that are currently on SVRs, around one million are “mortgage prisoners”. Research has found one of the main reasons so many people struggle is due to lack of awareness among borrowers.

Negative equity

One of the real worries of falling house prices is that many will find themselves living a repeat of the 80s and 90s, suffering from negative equity. Many may soon find that their most valuable asset is about to become less valuable.

First-time buyers may soon find that, after years of struggling to get onto the property ladder, that they’ll be owing the banks more than the property is worth – not a good situation to be in by any stretch of the imagination.

The main driver behind negative equity is an increase in interest rates, which combine with stagnant incomes and falling house prices – leaving many in a tough situation.

Even property experts are warning against first-time buyers scrambling to get on the property ladder at the moment, saying that it may not be affordable for long and that many may be worse off.

Finance expert Charlotte Nelson of Moneyfacts personal finance website said

“People are desperate to get on the housing ladder but the risk is negative equity. House prices are already starting to slow, and they might get on the property ladder now and prices may drop. That will mean they can’t move or change jobs. And if their living situation changes, it is very difficult.”

Falling mortgages, rents and house prices are one of the better side effects that the UK economy is experiencing due to a combination of Brexit and a snap election. What do you think? Do you think that you might be able to get your foot on the property ladder as a result of this? Or are you worried you’ll soon be left with negative equity on your house? Let us know in the comments below, or tweet us @CashLadyUK.