House prices to fall below £100,000?
Will we see average house prices of under £100,000? Some economists think so.
House prices are currently tumbling across the UK, but is this a trend that is likely to continue? Normally house prices, and ultimately lenders were happy to give out mortgages in a comparative ratio to individual’s salaries and their credit rating. A little outdated say some, but this is still a realistic way of measuring the affordability of mortgage repayments for many first time buyers. Although the days of 110% mortgages may be temporarily gone, the banks are still a little timid when it comes to handing out huge amounts of money. But as the economic situation in the UK worsens, will we see house price averages drop below £100,000?
How does the credit crunch apply to falling house prices?
Graph showing house price to earnings ratio
According to a number of economists, and the presence of included graphs, you can see how the house price to earnings ratio dramatically swings during boom and gloom periods within the economy. We are already in desperate times, so we are heading for another dip, which means the smart buyer may wait a year or so until the ratio is between 3-4x the annual salary before signing the dotted line. This also negates the over-exaggerated house prices that have forced out many new buyers in recent years.
The ratio has already dropped to around 4.4 x salary from a peak of 5.8 in the middle of 2007 or £200,000. Some economists foresee the figure dropping as low as 2.75-3x or around the £100,000 mark. My guess is that the house prices will bottom out in around 2011, but for the most accurate idea of when this will happen – just look to the official figures available from some of the big lenders.
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