Well, we now know what a fickle lot we are. The run on Northern Rock just goes to show how easily the public can panic. Presumably then if one of the big banks, or one of the companies that regularly publishes a report on the housing market, was to start predicting gloom, then panic would occur in the housing industry.

You might want to bear those comments in mind while you hear what the Nationwide has just said. The credit crisis is serious said the bank, but it qualified this by in effect saying “it’s not that serious.” Sure, house price inflation will slow, but the real impact of all the happenings of the last few weeks is to “take some of the froth out of the market.”

The Nationwide had house prices jumping by 0.7 per cent in August, and by 9 per cent over the course of the last 12 months. The Nationwide said, “We are now ending a period
during which house price gains were particularly strong in 2006.” Last September it had house prices rising by 1.3 per cent, and by 1.4 per cent, followed by 1.2 per cent, in the last two months of last year. Inevitably then, as the more modest rises we are likely to see over the next few months occur, the annual figures will fall sharply.

The Nationwide did concede this point. “The message from lenders is clearly that from now on, risk must have its price,” so said its chief economist, Fionnuala Earley. “As a result,” she added, “highly leveraged borrowing will remain less attractive and lending volumes in this segment may decline.”

But then Ms Earley went into a much more positive mood. She glowed about the change in expectations over interest rates. It’s now thought rates will fall soon, and celebrated what she called a “falling swap rate.” Ms Earley said, “Mainstream borrowers with good credit and lower LTVs, (loan to value)” will still be able to obtain good mortgage deals since “credit conditions have not deteriorated as much as the headlines may suggest.” She added, “It also suggests that payment shock for borrowers who need to re-mortgage in 2008 may not be quite as large as previously anticipated. Although many lenders are now increasing margins, it is reasonable to assume that at least some of the decrease in swap rates will be reflected in fixed rate mortgage pricing.”

She concluded by saying, “Looking further ahead, the development of the wider economy and labour market will determine the trajectory of house prices. A slowdown in consumer demand now looks likely to pull economic growth below its trend rate in the coming quarters and take further froth out of the market. A worst case scenario is for the economy to stagnate or fall into recession, with large job losses forcing homeowners into unwanted sales. This is still very much an outside probability, but it would be complacent to claim that the odds have not increased recently. In light of these uncertainties, prospective buyers would be wise to think carefully about their financial position and the risks around it before entering into a house purchase decision.“If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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