Some people in Britain seem to be suffering from the delusion that, as a result of high demand, house prices can’t fall.
They try to convince themselves that there’s a shortage of houses and, with all those immigrants coming here, house prices have got to rise – even if interest rates are going up.
I’m afraid that’s untrue, because:
- The prices of flats – so beloved of buy-to-let landlords – are already falling.
- If there truly were a huge shortage of houses, there would be hundreds of thousands of people moving into caravan cities. There’s no evidence of this.
- House prices in Ireland – which has also had a low interest-rate/high-immigration driven property bubble – have been falling. In the first five months this year Irish house prices have dropped 2.1%.
- People have less money to spend on houses. Let’s say you’re in the market to buy a house. You have £986 a month available for mortgage payments.
- A couple of months ago, that would have allowed you to pay off a £160,000, 25 year mortgage with HBOS – variable rate 5.59%.
- If you’re looking today, you’ll pay 6.44%. That means you can now afford to pay off £147,500 .
- In other words, today you are able to offer £12,500 less for a house than you could have offered a couple of months ago.
The Bank of England has the bit between its teeth. It’s determined to reduce the cheap money supply that’s been inflating the value of assets in the UK. Don’t expect mortgage rates to start coming down again any time soon. If anything, expect the opposite.