Credit crunch v House Prices

The credit crunch is still showing no signs of abating. The financial events that begun last year in the US have shocked the world at the sheer speed and size of economic change. Many people are now feeling much more vulnerable and exposed than they did 12 months ago.

Corporate and retail expectations have turned sour and a continuing stream of depressing news is reported in the media which adds to a new wave of the downturn.

Mortgage lenders are trying to cope with these recent events and will be as keen as the rest of us to see some stability to the market place.

This brings us to the headline of our story. The UK housing market is currently in a cash starved state purely due to the liquidity crisis. There is no denying that this is bound to have an adverse impact on the market and transactions that occur within this market.

However there seems to be a great deal of contradictory information that is being reported on house price falls. Everyday in the media there are reports that house prices in June were either down 1.9% according to Nationwide or 2.6% according to HBOS or flat according to the Land Registry. Which one is it? Someone must be right.

The volatility in this published house price data makes expectation formation and forecasting fraught with problems. The month to month movements in prices are highly variable as can be seen in the examples above and at times are very contradictory.

There is a definite risk that this uncertain and contradictory data could lead to a self fulfilling downward spiral in house price expectations which could undermine economic stability.

I know who I would look to to supply me data on the performance of the housing market out of the three examples I have used. The Land Registry is the most likely to be the most accurate as they take into account all transactions within the market place and not just a specific lenders figures as in the case of Nationwide and HBOS.

However more needs to be done. The Bank of England or HMT should publish a detailed house price expectation report to help improve economic stability rather than consumers relying on numbers flying in from everywhere.

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