House Prices Show Signs of Recovery

According to new figures, there are signs that the UK property market is starting to recover. Statistics produced by Nationwide have shown that the annual rate of house price decline has slowed from 15% to 11.3%.

After a 0.3% decline in April, the findings showed property values increased by an average of 1.2% in May 2009. Meanwhile, the average house price currently stands at £154,016. When compared to a peak in housing prices in October 2007 to £186,044, the figure for May shows a fall of 17.22%.

Falling house prices have meant that many are struggling with negative equity. This situation arises when the loans secured on a house are worth more than the property itself. This creates problems when trying to sell a house, get a better mortgage deal or even in the event of property repossession. It creates a form of financial entrapment and leads to debt for many homeowners.

The balance between housing supply and demand may be behind this change of fortunes. A monthly publication by the Royal Institution of Chartered Surveyors (RICS) showed a declining sale to stock ratio during 2008, with a slight recovery taking place in the early part of 2009.

Official figures released by the Council of Mortgage Lenders (CML), revealed that as many as 900,000 homeowners are currently underwater with negative equity. This is the equivalent of 5% of all UK homeowners. The CML did point out that homeowners cumulatively had the equivalent of £2 trillion of un-mortgaged equity, but this is of little consequence to those who don't have any.

House sales continue to remain close to record lows. The improvement in the sales to stock ratio can largely be attributed to there being fewer houses for sale on estate agent books. A number of factors are working together to reduce the overall housing stock and help with a property price recovery.

Fewer homeowners want to sell their home at a time when the property market is showing signs of bottoming out. This is, in part, caused by homeowners not being in a position to sell because of negative equity. A homeowner can be held financially accountable for up to 12 years for any shortfall between the value of any secured loans and the final sale price after estate agent and legal fees.

The number of new build properties is at a record low due to the higher risk posed by property investment. Figures by the National House-Building Council (NHBC) show that new build property construction is down 53% since April 2008. However, registrations for new property construction were up 7% in April 2009. The supply of rental apartments remains particularly high.

An increasing number of homeowners are choosing to let, rather than sell, their homes. This increase in reluctant landlords has had an adverse effect on rental yields, particularly in the Greater Manchester region. Thousands of new build apartments are still without a tenant. To make matters worse, those with un-let properties face a new government empty property tax that was originally designed to help with a shortage of affordable housing stock.

Whilst the house price trend has improved in recent months, it is still far too early to definitively say that the corner has been turned. Should the amount of housing stock increase further, additional falls remain a distinct possibility.

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