What is happening in the UK housing market now?

(September 2008) While banks may seem like the most well run institutions in the world, they make mistakes just like any other company or individual.

For years and years they were "recklessly lending" which provided people that could not afford to pay the loans back with high interest, high risk loans at rapid paces. In addition, a surprising amount of people got conned by scams, even more disreputable companies received loans for risky and dangerous practices, and even more companies and individuals built houses hoping and expecting to make a profit when the economy was better, only to find that there are far too many empty and open houses.

 

What is the result of all this?
When there is an oversupply of housing and an economy that is taking a hit from all of the reckless lending, housing prices drop and they drop hard. When the equity of homes goes down, the amount of assets that anyone technically has to their name drops as well, and the amount of spending drops with it.

With the UK housing market, what we are seeing is a waterfall effect. One mistake leads to another mistake which leads to another mistake, and in the end no one is winning.

What is being done about it?
The UK has launched into a "credit crunch" - not providing loans for any high risk individuals. They are also increasing the interest rates to account for this risk (which also makes it easier to default) and they are cracking down on fraud.

One part of fraud that was being committed was mortgages given to people without the means to pay it back due to fake and doctored lending documents about income and jobs. By giving people loans that cannot afford it, the banks lose the money, the house loses value and money is lost in all aspects of the housing market. The more they crack down on this fraud, the better.

What is the outlook?
Unfortunately, the outlook is not very good. Optimistic economists still do not believe there is any chance the housing market will get better until at least 2010, if not later, and that it will require a lot of work and a lot of help. Even then, there are guesses it may last 5 to 10 more years despite some major changes that are going to be hard to implement.

The UK housing market is in a state of disrepair. As residents, the only thing you can do is not take loans you cannot afford to pay back and not take loans from disreputable lenders. If everyone stops taking this excess risk, the UK will be off on a better track.

 





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