House prices likely to plummet

12/10/2009

The recent recovery in house prices is likely to be short lived, as ratings agency Fitch has warned they will fall by as much as 17 per cent in the near future.

A combination of soaring unemployment and the need for huge deposits from first-time buyers to secure mortgages means there will be a stifled demand for properties.

The agency claims that the long-term average earnings to house price ratio, which currently stands at 3.5 times earnings, will not increase and this will put downward pressure on house prices.

Brian Coulton, the group's head of global economics, said a fall of 30 per cent on prices from October 2007 would bring the ratio back in line and, as it has only declined by 13 per cent so far, a further 17 per cent drop is more than likely.

Debt solutions firm EuroDebt believes the increase in properties being put on the market is already having an impact by suppressing house prices.

Banks have already warned of a second dip as we come out of recession and EuroDebt expect that re-mortgaging and equity release are unlikely to help with personal debt situation? Take our Debt Calculator test today!'>personal debts in the near future.

They expect to see rising personal insolvencies and an increase in demand for debt advice.

People struggling with mortgage and unsecured debt repayments are likely to be hit with increasing interest rates and need to plan ahead.

According to euroDebt, it only requires a small change in disposable income to move financial management from 'just coping' to a 'debt spiral' where people use credit cards and short-term credit to pay other credit commitments.

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