Possible housing crash in 2008

According to many property experts, the bubble could be about to burst on Britain’s booming property market. A crash could wipe at least £450billion off the value of the country’s housing stock. The results would be a flurry of bankruptcies and repossessions.

According to research by the Bank of America, there is a one-in-five chance that the UK housing market will experience a severe crash in the next 12 months. The Bank states that property prices are currently overvalued by at least 20%.

Bovis Homes and Barratt Developments, the housebuilders, have recently indicated that the 5 consecutive interest rate increases have resulted in slowing growth in the property market.

In addition, record levels of mortgage and unsecured debt and buy-to-let enthusiasts are making the market even more unpredictable. Many hold the Gordon Brown responsible for forcing homeowners with higher taxes and his unwillingness to increase stamp duty thresholds in line with house price inflation.

Financial institutions and analysts believe that current economic circumstances are indicating a crash.

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20% fall in house prices say Capital Economics

Capital Economics, the macroeconomic research consultancy, believes property prices could fall by up to 8% this year.

The organisation then predicts a 10% fall in 2009. Added to the fall in property prices during the final months of last year, means prices will end approximately 20% lower than their 2007 high.

The predictions in property price falls are revised due to the long lags in the house buying process, house price data based on mortgage approvals reflect decisions made several weeks, or even months, earlier, according to Ed Stansfield, property economist at Capital Economics.

The data will not yet be fully reflecting the impact of the tightening in lending standards that we have seen this year, nor the recent falls in consumer confidence, added Mr Stansfield.

Last week, analysts at US investment bank Morgan Stanley, predicted that property prices will fall by 10% this year and 5% in 2009.

Furthermore, Neil Woodford of investment house Invesco Perpetual, said property prices across the UK will fall 8% to 10% this year.

Halifax and Nationwide have both reported falls in property values, while the Royal Institution of Chartered Surveyors (Rics) said confidence in the property market is at a record low.

Stamp duty holidays for first-time buyers being considered

The Government is considering cutting stamp duty in a bid to kick-start the property market.

The UK property market is in danger of grinding to a halt with prices falling at the fastest rate since records began over 50 years ago. Furthermore, mortgages are becoming harder to obtain.

In addition, over the last 12 months, the number of homes being sold by estate agents has halved as some economists are predicting further price falls.

A recent meeting between housing minister, Caroline Flint, and experts from the Royal Institution of Chartered Surveyors, took place where plans for reforming stamp duty were discussed.

The Minister explained that like all other taxes, stamp duty rates and thresholds, are kept under on-going review as part of the Budget process.

Reducing stamp duty or offering stamp duty holidays to first-time buyers is being considered. Furthermore, increasing the price bands at which stamp duty is charged is another option.

Ten years ago, stamp duty was charged at 1% on all properties purchased for £60,000 and over.

However, it is currently charged at 1% on homes bought for £125,001 to £250,000; 3% between £250,001 and £500,000, and 4% over £500,000.

Official figures show that over the last 10 years, a whopping £31.5 billion has been paid by homebuyers.

According to many experts, stamp duty is one of the major factors that is discouraging buyers from the market.

However, according to Ministers, changes to stamp duty would only make a difference if they were accompanied by further efforts to increase the supply of mortgages.

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