From a boom in the years leading up to 2006, 2007 saw a bust in
house sale prices. With the United Kingdom officially coming out of recession in January 2010 the market has stabilised, but little change is expected for the rest of the year.
Anyone looking to get onto the housing ladder over the past few years will have noticed there has been some interesting activity when it comes to the cost of property. In fact its been hard to keep track of what house sale prices were going to do next. But why have they been fluctuating?
In 2006 the United Kingdom was experiencing a boom period in the property market. House prices were extremely high but mortgage finance was so easy to come by that it didn't matter. In fact, almost anyone who wanted to could buy a property.
Some lenders were even lending 125% of the property value, which meant that not only would they lend you the full amount of the purchase price of your house but also another 25% on top.
But, like any boom period, it couldn't last and in 2007 the bust period began to set in.
Over in the United States house sale prices had also been high but, like in the United Kingdom, lenders were making it easy for people to buy properties by lending money freely and easily. This got a little out of hand though, and some of those who'd borrowed money suddenly found they were having difficulty paying it back.
Borrowers began to default on their loans and houses were repossessed.
However, what many people are unaware of is that when a bank or lender lends money to a borrower, it does not necessarily retain the debt. Instead, it may sell the debt in a bundle with other mortgages to other institutions. This is known as securitisation.
When borrowers in the United States started to default on their mortgages and the mortgage or debt became effectively bad debt, the banks had no idea who was now looking after that debt. Since the mortgages are sold in bundles it was almost impossible to track the defaulted ones.
This meant institutions and banks across the world had no idea how much bad debt they were holding and it wasn't until the end of the financial year when accounting reports were drawn up that the full effect of this bad debt came to light.
With banks and lenders crumbling, the housing market took a hit in confidence. People became reluctant to sell their property, preferring to remain where they were. And as banks became nervous and restricted funding, those wanting to take out a mortgage to get on the property ladder found themselves unable to do so.
As a result house prices began to fall, quite quickly in some cases. Over the next couple of years house prices remained on a steady decline while the government made every attempt to stabilise the economy.
Then in January 2010 the United Kingdom officially came out of recession. As such, confidence is slowly being restored and house prices are gradually creeping back up, although experts do not believe they will rise much this year and may in fact fall a little before any significant increase is seen.
House price activity has been erratic over the last few years but for those wanting to get into the housing market this year the general consensus is there were be little change during 2010.
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The fall in
house sale prices brought on by the financial market crisis of 2007 looks to have stabilised, although little change is expected for the remainder of 2010.
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