Decline In Houses Prices And The Impact On Your Mortgage Options.Decline In Houses Prices And The Impact On Your Mortgage Options.

The Bank of England base rate has again been held at 0.5%. This widely expected decision arrives on the same day that one of the largest house price indices revealed a further drop in property prices.

The Halifax price index has revealed that prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010.

The underlying reason for this has been reduced demand and higher supply since Home Information Packs were abolished by the new government earlier this year. A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

The underlying pace of house price growth has turned moderately negative in recent months. Prices fell by a modest 0.3% between the first and second quarters of the year. By comparison, the quarterly rate of decline was consistently in excess of -5% throughout the second half of 2008.

That said if this trend continues homeowners need to be aware of the impact that this could have on their future mortgage options. Lenders are pricing according to risk and therefore the more equity you have in your property the more favourable a rate you can secure. Now could be the time to evaluate your options, although best advice could still be to stick with your current lender if your on a low base rate tracker or on the lender's Standard Variable Rate, as the likelihood of an increase in the Bank of England base rate is unlikely this year.

For those of you considering purchasing a home Taj Kang Associate Director at Contractor Mortgages Made Easy said:
"It is likely that interest rates will remain low for the foreseeable future. As we head into the autumn months, with the current level of supply my advice would be to ensure that you have investigated your mortgage options prior to beginning your property search. This will then put you in a favourable position with vendors and you should be able to negotiate fairly hard and potentially achieve a better mortgage rate as a consequence."

Commenting, Martin Ellis, housing economist at the Halifax, said:

"Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices.

"On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners."

Remortgage activity is on the up whilst purchases are on the decrease according to the latest mortgage index from John Charcol.

Drew Wotherspoon, director of marketing at John Charcol, said: "Remortgages appear to be making a comeback. The very nervousness that is keeping purchasers away from the market is arguably convincing those who have held off remortgaging for some time to both literally and metaphorically get their house in order."

"In one month, the number of remortgages arranged [by us] has increased by 35%. Whether this is a blip, or a sign of things to come will only be seen in the coming months."

Taj Kang, Associate Director at Contractor Mortgages Made Easy commented: "I don't think the remortgage market will make a full comeback just yet. We will have to wait until the spending review comes out to decide the state of the market."
by Taj Kang
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