UK Housing Market Forecast 2008
The credit crunch has been pressing the UK Mortgage Sector hard as many easy credit mortgage deals have been from the main street shelves in recent weeks away. Despite the increasing activities of central banks simply to finance conditions and the liquidity is not an indication on the specific issues of illiquid mortgage related bonds and expectations that will be the UK Housing Market on the back of a surge in foreclosures burglary.
UK Mortgage Banking Sector – Northern Rock On The Brink of bankruptcy
An example of the credit crunches impact on the UK mortgage market, the banking sector, we need look no further than at Northern Rock. The mortgage banks stock price has fallen from recent highs of £ 12.58 to recent lows of just € 6.20, representing a decrease of more than 50%. Trading on a PE of 7.5 and a yield of 4% now, the bearings can seem tempting, but the mark down is in relation to the much higher risk of loan defaults and repossessions in the> UK as the housing market begins to dive. These repossessions (foreclosures) are already pushing the likes of Northern Rock with the expectations of a tripling of the rate over the next 6 months compared to the same period last year. This surge in repossessions will impact the outcome of the UK mortgage lenders, such as each larger provision for bad debts and is making a profit warnings.
This is in addition to toxic U.S. subprime-related exposure. Therefore, in the north – Go Rock's case a PE of 7.5 could multiples in a worst case scenario.
UK Adjustable Rate Mortgages (arms) and Liquidity
If the Adjustable Rate Mortgage Resets known as ageddon arm in the U.S., then here in Britain it should be called Doomsday, there are more than 90% of mortgages are variable rate or floating rate mortgages in the UK. The short-term fixed deals made in recent years are now resetting with a vengeance. With> Interest rates in the UK at 5.75%, and a chance (albeit a little less this one) with a further increase to 6% during October 2007 (UK Inflation CPI Falls But setting the interest rates to 6% Rise in October 2007 to July 18 07). The UK arm is a significant impact on the UK consumer and send the UK housing market into a downward spiral. Issue is further complicated the credit crisis will ensure that loans will be much more stringent criteria, with much higher interest rates than those chargedBase rate would imply a greater margin between the vote means the Bank of England, and the mortgage rates.
Even the most recent figures for new mortgage approvals for July show a fall of 27% over the same period a year ago as liquidity continues to tighten with borrowers against much tougher lending conditions.
The third impact of the credit crunch on the UK housing market is the loss of 'city bonuses. If, as expected for the financial markets remain depressed for at leastthe next quarter then the year end bonuses may virtually dry up. In the City of London, many of the housing loans are reliant on bonuses to pay capital as mortgages many, many times tend salaries. If the premiums do not materialize then, that London house prices, the other negative waves through the whole UK housing market sends be exercised.
UK Repossessions (Foreclosures)
UK home repossessions continue to rise this yearand forecasts, as many as 34,000 by year end, which is twice the number of 2006 of 17,000. Could not see going into 2008, we will not return since the last 1990s housing bust of the early years. The mortgage banks such as Northern Rock are strongly affected by what a doubling of the rate of repossessions reported. The impact of this will be even tighter borrowing requirements and a similar pressure on house prices of under-primer resulted mean, as occurred in the U.S.. Where expectations areextremely tight credit for those with poor credit history.
Uk Inflation RPI / CPI / Interest
The rate increases from 4.5% to 5.75% in one year to dispel the feeling that the optimism that UK house prices has done to such extremes.
The latest Inflation figures fell strongly in July, the CPI fell from 2.4% to 1.9% and the RPI falling to 3.8% to 4.4%. But given the magnitude of the increase in money supply,further declines are likely to be more muted. The chart trend suggests RPI could decline to the support of 3%.
That is enough to increase UK interest rates on hold at the time, which reached the likelihood that interest rates can now, like slow from the time of the British housing market nose dives and the economy is a recession, a further rise in interest rates will limit no longer on the cards and infact the expectations for cuts in UK interestPrices.
Interest Rate Conclusion – The Market Oracle expectations for UK interest rates to 5% in the second half of 2008 target.
Buy to Let Sector
The buy to let buy let sector remains strong with a record number of mortgages taken in the first 6 months of the year despite rising interest rates increase and falling rental yields. The result is to buy a growing number of investors, not in a position to cover their mortgageRepayments from rents and are therefore supply, relying on capital gains, profits. If, as expected, house prices have a tumble dryer then buy a mad rush by weak investors to limit losses to the decline in house prices in Britain could accelerate in 2008.
UK M4 money supply
UK Money supply growth shows signs of having peaked 14%, but while the money supply remains elevated at the rate of 12.9%, suggests that even before, a higher inflation in theFuture. And would be a much greater reduction to below 10% is required before the inflationary pressures are expected to ease.
The Market Oracle UK House Price Ratio
The graph above clearly shows that despite the sharp rise in house at 1996 prices until 2006, house prices in relation to the outcome remained affordable, and historically low interest rates enable home buyers to help you meet your mortgage repayments will be.
But this year the ratio clearly broke abovein the upper area and has not seen an increase in the relative costs of servicing mortgages to an extent since 1992 was. This becomes even clearer, since the impact of mortgage fixes taken when interest rates were at or below 4.5% is phasing out these increased risks in the mortgage sector to an ever higher floating rate mortgages, particularly those where a higher risk with poor credit histories, who may say what they will see mortgage rates double, from 4% to more than 8%!
UK House Prices
London and the South East led the way in the 1980s boom, rising much further than the rest of the country, with the rest of the country continues to rise as London reached its peak.
Even today, the South of England, rose to a much greater extent than the rest of the country, and thus is expected to fall especially hard, given the credit crisis in the City of London.
The resulting bear market will be launched to try clear contractthe spread between London and the rest of the country, at least 50%. What does a decline of 30% in the Greater London Area, UK and a general decline of around 14%. However, the decline in real terms when inflation is considered to be much larger.
UK Housing Market Conclusion:
The UK housing market will decline by at least 15% in the next 2 years. Despite the 2012 Olympics, London is expected to fall asUp to 25%. British interest rates are either at or near a peak, since it is a reduced chance of increasing a further increase in October 2007. When interest rates are reduced in the UK than the UK housing market specifically a decrease of 5% in the second half of 2008. The consequences of this are that the British economy is heading for the much lower growth for 2008.
What should I do?
1. Owner – If you are thinking of sellingYour home then the time to act is now! Wait while the credit crisis is to be strengthened further, a big mistake, especially given the fact that a further sharp declines in financial markets will be just around the corner.
2. Cash – Invest in fixed income bonds issued by large strong banks, avoid issues from mortgage banks such as Northern Rock. Note that in the UK savers protection at 90% of farms in the first 35k of investments in fixed bonds and savings accountsso bare that limit in mind. Also ensure you have used your Tax Free ISA allowances.
3. Be government bonds – Invest in Government Bonds, ready to hold to maturity, so that the risk of volatility reduced.
4. Government Certificates – Invest in national Savings Certificates such as the and Index Linked Tax Free Certificates, which are an excellent vehicle for higher tax payers.
5. A Stock Market Crash or Slump Would a good buying opportunity. The stock market isexpected to be volatile as we move into a new climate risk. Despite a high probability of falling further dramatic, and even a crash, there are many long-term plays are there, especially in the big cap oil sector. I would also look at bargain hunting metals and mining on further sharp falls or a crash. The same applies to utilities such as water. The best plays are probably via investment trusts, of which there are many. I am in favor of investment trusts through investment funds, as they aretraded on the stock exchange just like any stock. Whereas, as far as I can remember in recent financial crisis, the phone, you can see the hook at the other end of the line when you try to call to buy or sell mutual fund positions.
6. Emerging Markets – I would avoid China, the market is not in quantities of risk and is primed for a crash. India and Russia look enticing especially on a sharp decline in sympathy to the global market sell offs.
Whatever you do, remember that today's Idyllicpleasant picture in the UK will soon be in for a rude awakening, as the U.S. homeowners experiencing in increasing numbers. The bull market in housing is now more recognized for that now, while you have the opportunity to do something about it, rather than be forced to make a decision later.
Article originally published on 22 August 2007
