5 Myths of UK housing Market

by Richard Pettinger - Date: 2007-01-19 - Word Count: 487 Share This!

1. A shortage of supply means prices will never fall. Often people will say because of high demand a shortage of housing in London, prices will always be high and never fall. This is not true. House prices in London may always be higher than elsewhere in the country but there is nothing to stop house prices falling in London.

2. House Prices will keep rising. Perhaps the most dangerous myth of all. Yes there is a shortage of housing in the UK, but there are many factors that may cause house prices to fall in the future. E.g. Rising interest rates and a fall in confidence.

3. Housing is not subject to speculation because people live in them. It is true that many households buy a house to live in rather than as a financial investment. If house prices fall they wouldn't start selling, like if they had a commodity. However there is a significant section of the market that is driven by an element of speculation. For example people who buy to let are often hoping that equity gains will enable them to make a profit. If house prices stop growing or even start falling this section of the market will see a significant drop in house prices.

4. House prices are doomed to fall because prices have risen faster than income. The ratio of house prices to income has risen to an all time high. People see this as proof that house prices are unsustainable and are doomed to fall. However this is not necessarily the case. It appears demand for houses is quite inelastic. In response to rising prices people have found more ways to get bigger mortgages. Banks are willing to lend higher multiples. First time buyers are borrowing deposits from their parents. Lower long term interest rates make mortgage payments relatively more affordable than they were in the past. Basically there is no reason why the ratio of house prices to income cannot rise permanently.

5. You will be paying the same high mortgage payment for 30, 40 years. Many people quote the saying that a mortgage is like a weight round your neck, you will still be paying when you're near retirement. However many people forget that mortgage payments are highly likely to fall in real terms. Assuming interest rates stay the same your monthly payments could be say 800 for 30 years. However in 30 years time assuming inflation and a rise in real wages (which has happened in the past) then the mortgage payments will become a relatively smaller % of income and much easier to pay. For example if you got a mortgage on a house in 1980. Your mortgage payments may have been 200 a month, then that would have been a high % of income, but now it is relatively low. If you don't get a mortgage but continue to rent. The price of renting is likely to rise with inflation.

More on UK housing market http://www.uk-houseprices.co.uk.

Related Tags: house prices, uk housing market

R.Pettinger lives in Oxford where he is a member of the Sri Chinmoy Centre. He enjoys writing biography's of inspiring people. And edits a website called Biography Online. Your Article Search Directory : Find in Articles

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