House price slump continues to cause misery for homeowners

The UK housing market appears to be in a fragile shape at the moment, despite some small signs of improvement.

A growing number of households which are going through a divorce are struggling to spilt their assets, happier homes are trapped in negative equity and potential homeowners still canít get anywhere near ownership.

With worse to come, the outlook for the stagnant UK housing market could cause frustration.
Here are just a few things to keep an eye on over the next few months:

House prices

House prices are continuing to fall, which is great news for buyers. However, those who own a property face negative equity and potentially huge losses if they sell now.

The latest figures from the monthly Nationwide House Price Index show that prices fell in April by 0.2%. Whilst this marks a small downward shift in prices, this only adds further anguish to those trapped in homeowner horror.

Robert Gardner, Nationwide’s Chief Economist, commented: “The price of a typical UK home fell by 0.2% in April, following a 1.0% decline in March. This is the fourth time in five months that prices have declined. House prices were 0.9% lower than April 2011.

“Much of the recent softness in measures of housing market activity and house prices is likely to relate to the expiry of the stamp duty holiday in late March. This provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.”


Just as lenders started to relax their high deposit demands, the UK has fallen into a second recession. Given that the market has not recovered since the housing crash of 2008, potential homeowners face a tough and expensive time ahead.
Mortgages could become more expensive, especially for first time buyers. Figures from Halifax show that fixed rate mortgages have already increased by up to 0.3%, adding an extra £27 to the average £150,000 loan.

Banks and lenders are raising rates not only to gain profit, but to fight off buyer demand from offering the most competitive rates. As a result, lenders are asking for higher deposits.

The stagnant base rate is also forcing consumers to absorb the accompanying costs. A typical fixed rate mortgage is now 4.9%, which is the highest since August 2011. Less than six months ago, the average two-year fixed rate was just 4.1% in comparison.

Compare mortgages with Money Expert.
Your divorce and your property
As the economy wrestles with the spectre of a second recession, you may be inclined to believe that cash-strapped couples would be keen to put off the high cost of divorce. However, this is not the case and a growing number of households are splitting up, which in turn means assets have to be divided.

Official statistics show that there were almost 120,000 divorces in England and Wales in 2010, which is a 5% rise on the previous year. Typically, couples who own a home would sell the property and use the cash to fund their divorce and start again.

However, as the housing market takes the strain of the recession, a number of homeowners have seen their property value dramatically shrink. Not only has this led to a rise in the number of Brits living in negative equity, but a number of divorced Brits are living in negative equity.

Fiona Sharp, a financial planner and specialist in divorce from Almary Green, told This is Money: ìSplitting one household into two is becoming increasingly difficult. The capacity of newly divorced couples to get a new mortgage has gone down because there is less equity in properties and tougher lending conditions.î


Possession claims have fallen according to the latest government figures.  Possession claims, which are lodged at court, donít always lead to property repossession but can instigate the process.

This is a good overview of the current state of the market, as a growing number of people are able to continue making payments on their mortgages or find an alternative solution.

However, this comes after a peak of possessions in 2009, the largest level since 1991 according to the Ministry of Justice and Office for National Statistics (ONS). Possession figures have cooled off since 2009 and have continued to wind down since. Statistics show that 16,663 mortgage possession claims were issued in the first three months of 2012, which marks a 5% fall on the previous quarter.

The largest number of mortgage possession claims for the first quarter of 2012 came in the North West, with Burnley having the highest number of possessions which eventually led to an order.

The Council of Mortgage Lenders (CML) suggests that the dip for the first three months of the year only reflects the seasonal pattern, claiming: ìthe total was the same as for the first three months of 2011, indicating that the number of cases of possession appears to have stabilised for now.î

If you are concerned about mortgage possession, there is a government scheme available which could help.

The support for mortgage interest (SMI) programme sees the government help towards mortgage payments. The CML claims that SMI helps to save hundreds of millions of pounds a year, offering financial support to borrowers.

There is a 13-week waiting period, but the scheme covers mortgages up to £200,000. It could be worth applying now as the qualifying period for SMI will increase to 39 weeks and only cover mortgages up to £100,000 as of January 2013.

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