UK House Prices Fall for Second Month in a Row-Boon or Bane?

House prices in England fell by a considerable amount for second month in a row. This is a very good sign as per the economists. The price fall of last month was the first of its kind since the boom that started in 2013.

This is a very good indication for the economy as it is likely to ease the pressure of a market that is growing rapidly. The latest report by Halifax suggests that the housing price fell by 0.2% as compared to March 2014. That being said, prices are still going strong as compared to last year’s data at the same time.

The Flip Side

Even though prices have fallen, the housing demand is still on a high. There are no surprises as the British economy is slowly but surely improving as per the data of IMF released a couple of months back.

Factors such as lower interest rate, higher wage growth and an increasing confidence of consumers are fuelling the demand of houses. According to analysts, a stronger demand of houses coupled with slow market response has unexpectedly created pressure on the prices. That being said, the prices are likely to go up in the coming few months as more and more real estate projects are nearing completion.

The Economy

The UK economy will see the fastest growth of close to 3%-the highest among any western countries. As a result of the cheap mortgage, the demand for houses is steadily rising. As the Bank of England’s (BOE) base rate lies at 0.5% for over five years, certain stimulus scheme such as Help to Buy has also fuelled the demand. In order to keep a check on risky mortgage, the FCA has imposed strict regulation on mortgages.

Is There Going To Be Any Real Estate Boom?

Chances are negative. Although, the prices have dropped for two months in a row, various analysts suggest that the prices will go up again. The percentage of price growth could be anywhere in the range of 4% to 8%. This brings the question of whether there are any chances of a financial crisis as real estate booms due to low mortgage.

Analysts are sceptical about the chances of such crisis. Although, the price will go up, the wage hike is not as high as it was expected in the beginning of the year. As a result of that, the consumers are going to be conservative. A 2008 kind of a mortgage crisis is very unlikely.

British Government to Blame

Economists strongly blamed the British Government for its Help to Buy housing program. Assisting buyers to buy a house at 5% deposit was criticised by many. While this could easily help consumers buy houses, it also has the risk of mortgage failure.

In a welcome relief, the BOE announced that it would scrap the Funding for Lending program. This program helped banks to get cheap financing if they extended higher mortgage to its customers.

The Final Outlook

While prices might go up, the spending may not go up. As a result of this, the demand might further come down. Growing price inflation has forced consumers to curtail their budget as far as house hold item are concerned.

The average house prices are at a whopping £173,467, which is more than four times the average earning of the country. This is another proof that points toward a stable economy and dismisses the possibility of any house hold boom. While there are many speculation about house prices, only time can confirm the theories.