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House prices rose by 1.2% in May according to the latest Nationwide House Price Index which means the annual rate of decline has improved to -11.3%. This brings the average UK house price to be around £154,000 mark. According to Nationwide’s chief economist Martin Gahbauer, the short-term price trends indicator i.e. the three-month on three-month rate of change rose from -3% in April to -0.5% in May and currently stands at its highest level since January 2008. It is still too early to say that the market is turning definitively even though the short-term trend in house prices has clearly improved from where it was at the beginning of this year. In 1990s when there was a downturn, we had many months during which house prices rose, but only to fall back down again in subsequent periods. In present downturn there is tight access to credit and the combination of rapidly rising unemployment implies that the last of the price declines has probably not been seen yet. Nevertheless, it’s a sign of stabilisation as the improvement in house price trends seems consistent. Other economic indicators also suggest that any further house price declines may occur at a less rapid pace than in 2008. “The rise and fall in house prices ultimately depends on the balance of demand and supply of houses on the market. One good indicator of the supply-demand balance is the ratio of sales to unsold stock, published monthly by the Royal Institution of Chartered Surveyors. In 2008, this measure was on a steady declining trend, consistent with the acceleration of house price falls as the year progressed. The ratio has recently stabilised to a certain degree and this probably explains the improvement in price trends over the last few months. Having said this it still remains at a very low level by historical standards and continues to point to further house price declines. At the moment the way things are going it is unclear as to how the balance between supply and demand will ultimately work through in the coming months. The news from the remortgage market is a bit more gloomy. As homeowners choose to stay on with their lenders to take advantage of low interest rates, mortgage brokers are reporting falling levels of remortgage business. In the final quarter of last year the remortgage business accounted for 61% of the mortgage market. However in the first quarter of 2009 the remortgage business accounted for only 49%. The interest rates have fallen dramatically in this period, dropping from 5% in September 2008 to 0.5% by the end of March 2009. Many borrowers have been staying with their existing lenders The managing director of Paragon Mortgages has said: “Borrowers who are coming off introductory deals are enjoying historically low interest rates following the sharp reduction in Bank of England base rate, and are happy to stay on the lender’s variable rate which is most often linked to Bank’s base rate”.
Article Source: http://www.deeparticles.com
Jessica Jones is author of this article on Commercial Mortgage. Find more information about Mortgage Rates here.
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