Hargreaves Lansdown calls for ‘perspective’ on house price falls

Homeowners who see their homes fall in value need to keep some perspective, given that prices tend to recover from short-term dips, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said.

It seems likely house prices could fall this year due to the economic slump caused by coronavirus, which could be a particular blow to those who bought recently.

Coles said: “For those who have just bought a house, things could look pretty grim for a while – particularly if you’ve snapped up a new build. The premium on brand new property evaporates as soon as you’re in through the front door, so once the market struggles, you could quickly find yourself in negative territory.

“If you’re worried about house prices, it’s important to try to keep some perspective. Homeowners who lived through the 1989 crash will tell you that as long as you’re prepared to be patient and sit tight, prices will recover again.

“Anyone who bought at the peak in 1989 may have panicked as prices dropped, but if they’re still in the property, on average it will currently be worth more than three times the sum they paid for it.”

House prices fell by 20% between 1989 and 1993.

Coles was speaking after the Office for National Statistics released figures on housing affordability in 2019.

This found that houses in England cost 7.8 times national earnings, down from 8 times in 2019.

She added: “In many parts of the country, 2019 felt like a great year to be moving onto – or up – the property ladder, as sluggish house prices and rising wages made houses more affordable. But 2020 is going to be much tougher all round.

“Sellers face the prospect of falling values – and may well be reluctant to have viewers wander round their home – so the market could freeze up. It means that while prices are theoretically dropping, there could be nothing around to buy. Buyers may dry up too, put off by the prospect of snapping up a home that falls in value even before they’ve exchanged contracts.”

Kevin Roberts, director, Legal & General Mortgage Club, also responded to the ONS data.

He said: “Affordability in the housing market is clearly improving. Over the past year, buyers have taken advantage of the low rate environment and many have sought out the support of advisers to find great mortgage deals.

“Younger buyers and even those further up the ladder have also continued to benefit from schemes like Help to Buy and Shared Ownership.

“We are now clearly in unprecedented times though and industries across the UK, including the mortgage market, will be facing the challenge of adapting to a new normal.

“However, homeownership is an ambition shared by people across the country. Couples, families and individuals will all still want to step onto and up the ladder and homeowners will need to remortgage too.

“Many will continue to seek out the support of a mortgage adviser for guidance on repayment holidays and finding new deals should they become concerned about their financial wellbeing for example, seeking certainty that they are making the right decisions in these challenging times.”