Property market reels under latest blow


The catastrophic shake-up in the global financial sector following the collapse of US investment bank Lehmann Brothers and other financial institutions, could have serious repercussions on the depressed UK housing market, as homeowners face a further drop in the value of their properties and borrowers face even tighter lending conditions.


[UKPRwire, Fri Sep 19 2008] The catastrophic shake-up in the global financial sector following the collapse of US investment bank Lehmann Brothers and other financial institutions, could have serious repercussions on the depressed UK housing market, as homeowners face a further drop in the value of their properties and borrowers face even tighter lending conditions. The decline is exacerbated by the fall in mortgage approvals and the curbing of spending in the residential property market as the effects of the ongoing credit crunch continue to take their toll.

The severity of recent price falls has been seen even in the high end of the market, in such London areas as Notting Hill, Chelsea and Kensington, which have been historically resilient to market volatility, and these are likely to drop further after this week’s events. Homes in the £2--£3 million price range are experiencing falls of around 10% to 12% from last year, with demand for homes in this range from those working in the financial sector already down by 54% over the year to end-June. Overall, property values are falling around 1% to 2% per month and analysts predict a total 20%--25% drop in prices. The average value of a home has fallen by some 13% since August 2007 and now stands at around £175,000.

Confidence in the market, which some experts had seen as beginning to improve slightly as mortgage rates relaxed a bit over the last two months, has taken a nose-dive this week after the collapse of Lehman Brothers, which, along with the bail-out of Merrill Lynch and AIG, has sent shockwaves throughout the financial markets. The collapse of these financial giants will make banks even more cautious about lending to each other, and since the collapse of Lehmann Brothers the LIBOR rate (the interest rate at which banks lend to each other) has already shot up from 5.5% to 6.8%. The higher cost of interbank borrowing will inevitably result in higher mortgage rates for UK homeowners and the further tightening of already very tight lending criteria.

“The knock-on effects of the Lehman Brothers collapse will be felt throughout the UK property market, and couldn’t have come at a worse time for those trying to obtain a mortgage or having to re-mortgage,” said Lawrence Smith of Decision Homebuyers. “It’s bad news for vendors too, as they will be forced to lower their prices further if they hope to make a sale in the current climate, or else be prepared for a long wait before any degree of confidence returns to the market.”





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