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Home arrow News arrow Europe arrow UK property prices need to drop another 20% to be affordable, according to economists

UK property prices need to drop another 20% to be affordable, according to economists

Monday, 01 November 2010
UK property prices need to drop another 20% to be affordable, according to economists
UK property prices need to drop another 20% to be affordable, according to economists
Residential real estate prices in the UK need to fall by another 20% to make properties affordable, economists claim.  
Property economist Capital Economics said only a fall of a fifth to bring the average price down by around £33,000 to £130,000 will bring properties within reach of buyers.
 
It is also says that the lack of mortgage credit and the weak economic outlook also point to prices falling through the rest of this year and 2011 and it is predicting a fall of 10% in 2011.
 
‘We believe that to put the market on a more sustainable footing, prices need to drop by around 20%,’ said Ed Stansfield, chief property economist at Capital Economics.
 
Stansfield said evidence that lenders are refusing decent value home loans to anyone who does not have a large deposit, coupled with figures showing a drop in mortgage approvals, point to further price falls.
 
But commercial property could be an investment worth considering. He believes the UK’s economic recovery will remain ‘sluggish’, inflation worries will ease and the Bank of England base rate is likely to stay low, helping to create relatively benign conditions for the UK commercial property market.
 
‘The spread between interest rates and the Investment Property Databank All Property Yields Index is close to its 10 year high, which means that commercial real estate has the ability to generate income today with potentially high returns on capital investment,’ he explained.
 
Stansfield also pointed out that a recent Royal Institution of Chartered Surveyors survey heralded a greater demand for commercial property space.
 
Meanwhile, a report published by the Home Builders Federation has identified a first time buyer crisis. It said the typical young buyer needs a deposit of £37,233 to buy an average starter home costing £155,139. Without help from a parent, they would need to save 45% of their income for five years to raise this sort of money.
 
The situation is even worse in high price areas, such as London, where the average deposit for a first home has topped £62,000. The HBF blames a chronic shortage of new properties.
 
Meanwhile, buyers are taking advantage of falling prices with the return of gazundering. Up to 25% are attempting to renegotiate the sale price downwards at the last minute, say estate agents.


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