Falling House Prices Set to Continue until 2010

Is the Property Slump an Opportunity for First-Time Buyers?

Mar 9, 2009

The property slump has made renting a house attractive. With falling house prices set to continue until 2010, when is the right time for first-time buyers to buy a house?

Falling interest rates have done little to offset falling house prices. According to the February 2009 Halifax House Price Index, property prices have fallen by 17.7% over the last 12 months. The economic gloom has served to cause a property slump that looks set to continue well into 2010.

What is Causing Falling House Prices?

House price growth was fuelled by a credit boom causing prices to reach unsustainable levels. The credit crunch couldn't have happened at a worse time as unemployment was already starting to rise. This led to families not being able to afford mortgage payments.

Lenders have become increasingly reluctant to lend to anyone with an LTV above 75%. First-time buyers are finding it very difficult to save a sufficient house deposit. To make matters worse, many families are unable to move house because falling house prices are causing negative equity problems.

The Consequential Rise in Rental Properties

According to FindaProperty.com, rental properties are yielding 4.8% less rent than they did the previous year. This is largely because buy-to-let investors cannot sell their properties and are instead renting them out. This has meant that it now takes an average of 70 days to rent out a property, representing an increase of 27% over the past 12 months.

The biggest declines have taken place in the North West where rents have fallen by 14.3% from £645 to £592. This is due to an excess of new-build properties in the Manchester area. However, the more affordable London boroughs have generated higher rental yields for landlords.

Do Falling Property Prices Present an Opportunity for First-Time Buyers?

Residential property experts, Cluttons, believe that falling property prices are set to continue until well into 2010. They are projecting that property prices will fall by 9% in 2009 and 1.5% in 2010. It could take 6 years before parity is restored with peak prices in September 2007.

With property prices falling and the cost of renting a house also coming down, it may be advisable for first-time buyers to wait before stepping onto the property ladder. Twelve months from now could be the ideal time for first-time buyers as the market is likely to have bottomed-out by then.

The property slump has created an opportunity for first-time buyers, but a 25% house deposit presents a considerable obstacle to getting on the property ladder. Renting a house is more advisable than buying a house in the current economic climate, but this is likely to change 12 to 18 months from now.

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