The UK housing market experienced one of its most trying phases in December 2007 drawing comparisons to the 1992 recession as the value of properties in the UK plummeted by almost 30%.
According to the news reported by Bloomberg, the Royal Institution of Chartered Surveyors (RICS) revealed that December 2007 was considered by real estate professionals in the UK as the worst month for the housing market since the repercussions of the 1992 recession in Britain.
With interest rates shooting up, the value of properties was reported by RICS as having dropped nearly 30% after the UK’s last drastic plunge in the housing market in November 1992. The percentage of surveyors in December 2007 reporting a decline instead of an increase was 49.1% while in November 2007, it was 40.6%.
It was the Bank of England responsible for the slowdown in the UK housing market by hiking interest rates five times from August 2006 to August 2007 to 5.75% in a bid to ease the frenzied expansion of the UK economy, double-digit growth in house prices and highest inflation levels of the decade. The sub-prime mortgage troubles in the UK triggered a credit crunch in the country’s economy giving jitters to lenders. Thus, property prospects grew bleaker for buyers, adversely affecting demand.
The downward trend in the demand for houses is also the result of rising supply. Partly contributing to the influx in supply was the extension of the government’s home information packs in December 2007 for all properties that led to homeowners deciding to sell their homes to beat additional costs.
In the opinion of industry researchers, the Christmas season was another reason for the drop in housing prices in December 2007 with consumers more preoccupied with purchasing gifts, clothes and electronic devices. As retail sales climbed, housing affordability suffered.
With close observation of the housing market, the Bank of England is building pressure on the Monetary Policy Committee for bringing down interest rates by another 25 basis points from 5.5% to 5.25% in February 2008.
A RNCOS Research Analyst put forth, “The UK housing market is ailing due to adverse economic conditions of the people. The poor sales in December 2007 will intensify concerns over the housing market given the tense affordability and controlled lending. It is advisable for the Bank of England to lower interest rate considering the declining confidence levels of consumers and property dealers.”
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