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We seem to be a nation of homeowners here in the UK today, with a higher percentage of us owning our property than most of our European counterparts, whether it is owned outright or subject to a mortgage or other secured loan. House prices have grown dramatically over the past few years and although this has been great news for existing homeowners, those first time buyers who are trying to get their feet on the first rung of the property ladder have found it increasingly difficult to be able to afford that first purchase. Many have had to borrow funds from parents for additional deposit, or have family members act as guarantors for the mortgage payments in order to obtain the necessary level of funding. Many young people who would normally be buying their first house in their early twenties are now renting for longer periods and not entering the housing market until they are in their thirties. This also applies to existing homeowners who may be looking to make the next move to a larger home. The gap in price between where they currently are and where they would like to be has widened to such a degree as to make the move unaffordable. Despite these facts, many people have been led by their desire to live in their dream home rather than by common sense and have taken out high income stretch mortgages beyond their realistic affordability.

The huge increases in house prices, coupled with the Bank of England interest  base rate steadily increasing up to a level of 5.75% in 2007, has led to a significant slowdown in the housing market. Fewer people are buying and many individuals who have purchased property in the past two to three years, whether they are first time buyers or movers, are finding it increasingly difficult to maintain their mortgage repayments, particularly where they opted for a low fixed rate mortgage which has now come to the end of the fixed rate period. Many have seen their mortgage payments soar as deals end and they are suddenly forced into paying the standard variable rates offered by their lenders, which can often be two or three percent higher than the previously fixed rate.

As the impact of the recent Credit Crunch continues to adversely affect both the housing market and mortgage lenders alike, the financial regulator, The Financial Services Authority (FSA), has issued a stark warning that over a million homeowners will find it difficult to meet the repayments on their mortgages through the course of 2008, with many of these falling into arrears, or even defaulting on their loans. There is of particular concern for approximately 1.4 million borrowers whose fixed rate mortgage deals will end this year. If they do not take action, the average mortgage repayment is likely to increase by £210 per month.

Another blow to the housing market came from the Land Registry at the end of January when they announced that house prices fell again in December 2007, a statistic which has been backed up by figures from the Halifax and Nationwide Building Societies who have both recorded a decrease in the cost of property over three consecutive months.

With high interest rates and falling house values, many borrowers who are currently struggling to keep up with their mortgages are faced with the dilemma of not only being unable to afford to meet the monthly repayments, but also not being able to sell their homes and downsizing due to being placed in a negative equity situation. This was the same scenario faced by many borrowers in the early to mid nineties, when interest rates were running at around 15% and the housing market collapsed, causing many people to lose their homes. It is perhaps little surprise then that the Council of Mortgage Lenders made a prediction this week that repossessions were likely to increase by fifty percent in 2008, with around 450,000 homes being repossessed during the course of the year.

So what should you do if you happen to be one of the unfortunate individuals who find’s themselves in this situation, having difficulty paying the mortgage and maybe even, already having some arrears on your account? First of all, to quote the Hitch-hiker’s guide to the galaxy, “DON’T PANIC!”, help is at hand. You should contact your mortgage lender as soon as the problems start. Under the Mortgage Code of Conduct, they are obliged to view your financial problems sympathetically and will always try to help you remedy the situation in a mutually beneficial manner. This could include: offering a reduced interest rate for a period, offering a new mortgage deal, capitalising any arrears within the existing mortgage, extending the term of the loan to reduce the repayments, or switching the mortgage loan to an interest only basis for a period of time. It is not in your mortgage lender’s interests to allow your loan to go into a default situation and they will only ever repossess a property as a last resort. Another option could be to look at a re-mortgage, although depending on the level of arrears, this may not be a realistic option as many lenders are being forced to tighten their lending criteria and may not be able to offer a viable alternative. The worst thing you can do is nothing. Many people, when faced with financial difficulty, feel ashamed or embarrassed and tend to bury their heads in the sand, not opening their post or replying to correspondence, hoping that the problem will go away! This is the worst possible course of action, as you will find out when the Bailiffs are knocking at your door!

The outlook for the housing market seems full of doom and gloom then! What with the full impact of the Credit Crunch leading to job insecurity, lenders withdrawing from the mortgage market (or at least, severely restricting lending criteria), house prices falling and a huge increase in the number of repossessions as borrowers either can’t afford their mortgage payments, or surrender their properties back to the lender voluntarily in order to escape the negative equity, why on earth would anyone want to buy a house in the present economic climate? Furthermore, should those of us who already own our homes sell up quickly and get out of the housing market before the value of our existing home plummets?

The simple answer is, of course, no. Property will always offer a good long term investment, with the key words in that statement being “long term”. Yes, the housing market has slowed down significantly in recent months and the evidence suggests that it could slow yet further, but are we on the brink of a complete collapse of the housing market in the same way that many of us remember from the early to mid nineties? Experts in the property market predict that there is likely to be a fall in house prices in the UK of around five percent throughout the course of 2008. This is, of course, an average figure, some properties in certain areas are likely to be hit harder than this, whilst other houses may actually rise in value, depending on the desirability of the property and the location. The Bank of England are also expected to reduce interest rates through the year. We have already seen one rate reduction in December 2007 and many predict that the base rate will have fallen by one percent, to 4.5% by the end of 2008. With house prices generally lower and interest rates reduced, the housing market should become more affordable and attractive to both movers and first time buyers. This will restore confidence in the market and the prediction is that we will see a steady increase in property values from the start of 2009. So what we are experiencing currently is a dip in the housing market, but with a more optimistic outlook in the not too distant future. The advice to those who already own property, therefore, is to stick with it for the next twelve months and you are likely to see your mortgage payments reduce and the value of your property start to increase once more.

But what about those people who are looking to buy a house this year, should they wait until the market picks up, or buy now whilst confidence is low? There are certainly many bargains to be had at the present time. Houses are not selling at the moment, which means a vendor may accept an offer well below the asking price, rather than have their property left on the market for a long period of time. The other option for buyers is to look for repossessions. If the predictions are correct, then there should be a large number of properties available through this route during the course of the year. Once a lender has repossessed a property, they will want to re-sell it as soon as possible in order to recoup their losses. This will mean properties for sale at prices well below the market value. Those individuals with a conscience may be concerned that by taking this route they are cashing in on someone else’s misfortune. This may be true, but if you don’t buy it, someone else will!