The Bank of England has kept interest rates virtually at zero since the crash of 2008, making mortgages incredibly cheap.
Perhaps that’s not a bad thing, as it has enabled a lot of modest folks on low middle incomes to become property owners, created wealth and lifted many people out of poverty. For example, people on modest middle class incomes who had bought houses for a few hundred thousand pounds in the not so prime areas of London, like London's East End during the mid 2000s, now own an asset worth more than £1 million ($1.68 million).
But the flip side to this is that years of low mortgages have created a tsunami of buyers into the market, which has sent prices to the stratosphere. Meanwhile, Britons' real incomes have fallen during this period. So the gap between people's incomes and property prices has widened to the point that getting on the property ladder has become unaffordable for millions of first time buyers, unless they receive financial support from their families.
However, the story isn't about people out of the market scrambling to buy properties for fear of being shut out, but rather the other way around.
Londoners have begun “panic selling” their homes, according to a recent article in the Telegraph,for fear that this may be their last chance to cash in on the property ladder lottery before the housing boom comes crashing down. Perhaps the article maybe a bit sensational, since for someone to “panic sell” someone must be panic buying and that doesn't appear to be happen.
Nevertheless, most of the Real estate agents are pretty much singing from the same hymn sheet. Savills reported that the London market was topping out. Savills group chief executive, Jeremy Helsby, told analysts that Londoners were getting out while the getting was good:
Good price rises in London have encouraged people to move out ... They’re going into the home counties, and filtering further up and further out.
More evidence was put forward to suggest that the real estate market has reached its top, which came in the form of the house price-to-earnings ratio as tracked by Halifax, the mortgage lender. Prices have again crested over five times the income of buyers. The last time they did that was right before the 2007 crash when peak prices hit 5.83 times earnings.
Then the moment of truth came. UK property prices are now starting to fall.
Hometrack, the housing data company, published a scary chart. It was full of downward-pointing red arrows showing that in London, price growth is declining, fewer people are buying houses, fewer sales are occurring and asking prices are in decline.
Only last month asking prices have started to fall for the first time in 2014, down by £2,116, with the UK’s annual growth rate slowing from 7.7 percent in the 12 months from June to 6.5 percent in the year to July, due to tighter regulation on mortgage eligibility, reported the property portal Rightmove.
Data from Hometrack last week backed this up and showed that house prices in Britain have stalled as the number of new buyers plummeted in July and consumer sentiment shifted from over-zealous to cautious.
Moreover, the rate of house price growth fell to its slowest in 18 months - according to the leading survey of estate agents.
This drop in the growth of property values is a result of interest fears, tighter mortgage rules and aggressive rhetoric from the Bank of England that a "hot" UK housing market, in the south east, is the biggest threat to the economic recovery.
So, on the demand side, sentiment is suggesting that prices are now so high no one can afford to actually buy houses in London any more, and that could be fueling a stampede for the exits among those sitting in Britain's most expensive real estate. That means the supply side of the property market is rising as fears grow that property values could go into reverse after a period of frenzied house price growth, according to the latest Halifax Housing Market Confidence Tracker.
Nearly 60 percent of those polled by the lender believe they should sell within the next year, compared to 32 percent. This is the highest score of this measure since the survey's inception.
A wave of sellers have already entered the market according to Halifax's latest figures, as home sales during April to June were 21 percent higher than in the same three months last year.
"In London the trend of selling up from more central zones to get better value and more space in suburban or commuter belt locations will also continue. Many recognise the significant arbitrage opportunity that now exists and want to maximise this opportunity to cash in," said Adam Challis, head of residential research at the property group JLL.
Despite the fact that July saw the highest average house price, of £186,322, since April 2008, this dash to sell comes as buyer demand is dropping off, the Halifax report revealed.
Lenders have become more conservative with more stringent lending criteria being introduced in April in the form of the Mortgage Market Review, making harder for prospective buyers to qualify for a home loan. New filters include future interest rate stress testing and a cap on high value-to-income loans.
The fear in the property market now is that a housing bubble burst might bring about the return of millions of home-owners being trapped into negative equity. The dearth of many first time buyers who bought at the later stage of the housing boom and families wanting to upgrade to bigger homes are likely to be the worse affected by negative equity.
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