Fall in UK House Prices
Many homeowners in the UK are alarmed and concerned at the steady drop in housing prices over the last year, especially in the context of an increasingly insecure economy.
As a house is the most valuable and important asset within a family, which is why many homeowners are concerned this current steep drop in property value may make their homes worth much less than they initially paid, sending them into a negative equity situation. This will of course make it harder for a homeowner to sell their house without having to dip into their home’s equity or even to take out a loan secured on this.
The fall in housing prices is a direct result of negligent borrowing and lending on the behalf of UK banks. Over the last few years some UK banks sought to lend and borrow money cheaply in America where interest rates were lower. This allowed them to easily make larger loans domestically, which meant that people were able to pay more for their new house, sending prices upwards. Unfortunately when the American credit crisis hit, these UK banks found they were unable to continue borrowing American money to lend to UK consumers, and also they were now saddled with bad debt from poorly-made mortgages that American banks had sold them.
There is hope, however. The UK has kept it’s bank interest rates at 5% to ensure that banks lend sparingly and that they do not let irresponsible people borrow excessive amounts for property. Additionally, UK banks are consolidating, reinvesting and becoming nationalised so as to purge themselves of bad American-based debt.
In the long term, housing prices should stabilise, and hopefully return to their appropriate values.
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