Follow our lowdown on the latest developments surrounding house prices and find out what you can do if you are looking to remortgage or buy a property for the first time.

House prices have fallen - the average house is now worth £1,759 less than it was in May 2007 according to research from Nationwide. The study claims the typical price of a house is now 1 percent lower in comparison to April 2007. A significant lack of buying – as buyers take a wait and see approach - has encouraged house prices to fall.

“The fall in transactions has pushed up the stock of unsold property on the market and improved the bargaining power of buyers, thus pushing down prices,” explains Fionnuala Earley, Chief Nationwide Economist. Read More.

House Price Latest: How far will property fall?

No one knows by how much property prices will fall in the coming months or years – some experts predict a fall of 20% over the next two years, but to put it into perspective this will still only take us to 2004 prices. So if you bought before 2004, the chances are your property will still sell for more than you paid for it.

Confidence is a major concern, however, and as buyers ‘wait and see’, there are less people buying property: this makes sellers nervous, and more likely to accept lower offers, pushing property prices down further. Newspaper reports and headlines also have this negative effect on property prices. So we could be looking at market repositioning and a fall in house prices.

House Price Latest: Supply and Demand

But, if you look at the broader picture, in the longer term there is little to suggest property should continue to fall.

Stewart Lilly, President of the National Association of Estate Agents (NAEA), believes that the global credit crunch, squeeze on mortgage approvals and the media cloud that currently surrounds the property market are undoubtedly having an effect on individual's decisions to buy or sell, but suggests that there is a need to remind people of the underlying factors that hold-up the property market.

“Low unemployment, historically low interest rates and a pent-up demand for houses - still exist. In fact, a number of NAEA agents from across the United Kingdom are still reporting stable property markets with many of their branches making steady sales.”

House Price Latest: Demand Outstrips Supply

In key areas, such as the South East, demand outstrips supply, with few new properties being built. There may be a glut of town centre flats on the market, and these types of property could take a tumble in the coming months and years, but there is still a shortage of family property on the market. Long term then, prices could rise. Interestingly, the government has encouraged developers to build new flats, and figures from the Land Registry suggest that in 2007 there were a third fewer houses being built each year than in 2000. So if you are looking to buy a house in an area where there is likely to be continued demand – in the commuter belts, major towns and cities, and don’t intend moving for a while, property could still prove a valuable investment.

House Price Latest: Are falling prices good news for first-time buyers?

So with property prices falling, is this good news for first-time buyers? Not really. Falling prices are all well and good, but lenders are tightening up on who they lend to, making it more difficult to find a mortgage in the first place. Also, the banks are asking for larger deposits from customers – for example, Abbey and Nationwide now require a 10% deposit - so if you don’t have a deposit saved up, you could struggle to find an affordable mortgage.

Katie Tucker from Independent mortgage brokers John Charcol argues that mortgage approvals of all types are now a quarter less than last year.

“New house purchase mortgage approvals specifically are down a daunting 44% year on year, and these lost movers are the first time buyers with small deposits, the borrowers with previous credit problems, and the buy to let landlords with minimal rental income: they have been thrown out of the melting pot of buyers.”

Salaries have increased 53% in the last ten years, but the average monthly mortgage payments have increased 172% this last decade.

“When lower demand brings down property value like this, people perceive their wealth to have fallen, which causes longer term problems to the consumer-dependent economy, not to mention a very real sense of insecurity,” continues Tucker.

“However, the economy as a whole is strong, growth of GDP is a priority for the MPC, and unlike during the early nineties, when bank rate policy was straight-jacketed by the Exchange Rate Mechanism, we are unlikely to fall into such a recession.”

Remortgaging and Mortgage Advice: What to Do Now

Tucker argues that despite the government's best efforts with their £50bn bond exchange, LIBOR – the rates that banks lend to one another - has fallen a measly 0.06 to 5.86%, still some 0.86% above official Bank rate.

The effects of this incentive will be slow, particularly as
Nationwide and Abbey no longer offer 95% mortgages, now demanding a 10% minimum deposit. Lenders are constantly changing their rates and their lending criteria as they try and keep inline with their competitors - any lenders able to offer better rates will have to do so gingerly and in careful timing with each other, to avoid a flood of business.

If you are looking for a new mortgage or to remortgage an existing property, consulting a fully qualified mortgage broker is key: they have experience, know the market and will be aware of changing rates before you. Credit Crunch Mortgage Tip: Once you find an acceptable deal that you can afford, take it immediately, as deals can change with little notice.

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