The climate for current homeowners in 2008

If you’ve owned property since 1995 then the chances are that you’ve been quite contented about the rocketing prices sweeping the UK housing market. A growth of some 182 per cent in the past ten years has set the current average house price at some £197,000, and while this sort of thing makes many property owners very happy – especially the booming trade in buy to let – first time buyers have found it increasingly difficult to get their foot on the ladder.

With the sharp rises in prices, many people clearly now believe that owning a property is safer than cash. Research by the BBC found that 53 per cent of respondents felt this was the case. It’s a fairly worrying statistic, and is directly at odds with the view held by the overwhelming majority of finance professionals. Property prices can fluctuate, and while they have a long term pattern of good returns, there is no guarantee that your property will remain above the level that you paid for it. Meanwhile with cash, as long as your bank remains solvent, there is no risk to your capital. Those holding the belief that property is safer than cash could also be in for a greater shock in 2008, with the likelihood that prices will flatten out, or even decline.

Property markets currently being overvalued isn’t the only factor in the likelihood of a slowdown in 2008. The worldwide credit crunch in financial markets has meant that banks are going to be less likely to lend at least for the first half of 2008. The pattern for a fall off of mortgage approvals appeared in the autumn of last year, with lending dipping by 12 per cent from August to September, and a further 8 per cent from October to November. This might not seem like a worry to those who already have a mortgage, but PwC have recently noted that over one million people will suffer an average increase of £140 per month in 2008 as they come off their fixed rate mortgage. The way to beat this, of course, is to try and remortgage during the year. Below are some of the top mortgage deals available from the UK high street banks for a two year fixed rate mortgage, but note that rates are likely to decrease over the coming year because of an anticipated drop in the Bank of England’s base rate.

Lender	Product	Typical Initial Rate	Rate Thereafter	Minimum Deposit
Natwest	Mortgages	5.49%	7.69%	25%
Alliance and Leicester	Mortgages	5.73%	7.69%	5% (varies with price)
Lloyds TSB	Mortgages	6.19%	7.5%	5%

Another problem facing homeowners will be the drying up of available homeowner loans. Because of rising prices, it has previously been easy for homeowners to release equity on their home. However, with a stemming of house price rises possible for the coming year, combined with bank’s reluctance to lend, these will be more difficult to come by.

Despite the potential worries facing homeowners in the coming year, we are unlikely to see a house market price crash. While some websites like the Motley Fool have anticipated a 20 per cent fall off, most other people are being more optimistic, confident that the buoyant British economy matched with a few interest rate cuts will keep the market flat.