The good news about the bad news

                                                                                         

Today, it seemed, was a bad news day, at least for those who see falling house prices as a bad thing rather than a chance to pick up some bargain property investment. Nationwide's latest house price index showed that the average home in the UK now costs £173,383, a drop of 2.5 per cent in a month and 4.4 per cent in a year.
Such a fall may be taken as an alarming sign that the housing market is on the slide. Or then again, it may not. For one, the current price is still five per cent higher than it was two years ago and ten per cent higher than three years ago.
But perhaps of greater significance is the view of Nationwide's chief economist Fionnuala Earley that the level of interest rates may be about come down as a result. While suggesting the recent jump in consumer prices index inflation is likely to rule out a reduction in the base rate by the Bank of England monetary policy committee (MPC) next month, she said that data on housing and other economic indicators "could lead more MPC members to join David Blanchflower in voting for pre-emptive cuts".
Mr Blanchflower, of course, is known as the arch-dove of the MPC, nearly always voting for cuts, even when - as the minutes of this month's meeting showed him to be - he was the only one. If his colleagues take such a step, this could be the next move towards a drop in mortgage costs, not least if the Bank's special liquidity scheme gradually makes an impact on liquidity and Libor rates in the coming months.
In addition to this, Ms Earley stated that a repeat of the repossessions crisis of the early 1990s was unlikely, with larger deposits and the fact that less people bought at the top of the market being two reasons why the mortgage burden is not so great. The idea that the market may collapse in a great heap of lost homes as in the US is not, in her view, likely.
Nor is it expected by the Council of Mortgage Lenders, whose spokesman Bernard Clarke has said that the "lower and more stable" borrowing costs present now make the risk of a repeat somewhat remote. In terms of costs, it may be noted that even if David Blanchflower remains a voice in the wilderness and the base rate stays at five per cent, this is far less than the rates the government was forced to levy to bolster the price of Sterling against the German Mark under the Exchange Rate Mechanism (ERM) in the early 1990s - a level which soared first to ten per cent and then to 15 per cent on Black Thursday in September 1992 before Britain's membership was suspended.
Summarising his view and noting the difference in employment between now and when Messrs Major and Lamont were pulling the ERM plug, Mr Clarke said: "We are still not likely to see a price correction of the magnitude that we saw in the 1990s and neither is there any expectation that there will be the increase in unemployment that we saw back then."
However, it is perhaps the "lower and more stable" aspect which is more important. Ms Earley attached the word "sustainable" to the word "stable" in her assessment of the market, commenting that while a tightening of lending criteria might lessen the availability of higher loan-to-value mortgage deals, it could also lead to "less overstretched borrowers" and therefore a market that provides greater stability.
If Ms Earley is right, such stability, if it is the long-term result of the lessons learned by lenders in the credit crunch, could be the best good news to emerge from the bad news, for it could go a long way to preventing the market booming too much or fearing a crash in the future.
In today's world Property investment is an excellent investment option especially investment in UK.

About the author:
Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property.

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