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“The fact that people like you have been saying for so long that house prices will crash, and that they haven’t, makes it pretty clear to me that they won’t,” said a reader to me this week. I barely knew how to respond. I haven’t heard such an extraordinary piece of non-logic since 1999 (“you keep saying that tech stocks will fall, but they haven’t, so they won’t”). Surely the fact that something hasn’t happened yet, despite all the signs suggesting that it should, makes it more, not less, likely to occur? To a degree, I suppose a lot depends on how you define ‘crash’. But I would say that the fact the price of new-build flats has already fallen 10% in a year (according to the FT) smacks of the beginning of one.
Not according to my illogical friend, though. New-build flats, he says, don’t count. There is massive oversupply, thanks to the overenthusiastic building practices of the last few years. So, yes, prices of new-build flats may keep falling, but as they’re still a tiny part of the market, their fall won’t affect the rest of it. New-build flats, he says, are “marginal”. But isn’t the property market, like all markets, all about what happens at the margin? If the price of new-build flats falls substantially and it begins to look much cheaper to buy two two-bed flats next to each other, and to knock them together, than to buy a four-bedroom house, then won’t the price of four-bedroom houses fall? There is more complacent nonsense talked about the property market than about any other.
If there was less complacency, there might be more attention paid to the possible consequences of a fall in house prices. Spare a thought, for example, for all those who, having taken out fixed mortgages two years ago, are now having to remortgage with interest rates 25% higher than they were in 2003. Not only are they being hit by much higher monthly payments, but if they try to move provider for a better deal, they’re going to get another shock.According to MoneyExpert, mortgage firms have boosted application fees for fixed and discounted-rate loans by an average of 24% since the end of January 2004. It can cost you more than £400 to arrange a new fixed-rate deal.
No doubt the providers are just nervous about the lack of business coming their way (mortgage approvals are tanking) and trying to compensate for it with these fees, but add to all these burdens the fact that house prices are, at best, no longer rising and it’s hard to see why anyone with a mortgage would ever want to go shopping again. Falling house prices, rising interest rates and nervous lenders make for a nasty combination
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Merryn Somerset Webb