House prices fall by 2.4% in May

Halifax, the UK’s biggest mortgage lender, said that house prices fell by 2.4% in May. The average price of a home now stands at £184,111. Additionally, on an annual basis, house prices are now 3.8% down on this time last year.

You may be getting a little sick of hearing about the housing and mortgage problems, and quite honestly the team here at Moneybasics is getting a little sick of writing about it, but the fact remains that falling house prices is significant news – both for homeowners and non-homeowners.

Most homeowners consider their property to be their primary form of investment and security for their future. Sadly, the nature of market forces means that as well as going up – house prices have, quite comfortably, more than doubled in last decade –house prices can also go down. Property itself should not be used as your only way of planning for your future financially.

For non-homeowners, the problems in the housing market are making it more and more difficult to get a mortgage at all, let alone a reasonably priced mortgage. Further, falling house prices have knock-on effects for the rest of the economy: lower consumer confidence and therefore lower consumer spending and also lower business spending and investment.

In other words, all of us have a vested interest in how the housing market performs so while you may be getting sick of the same headlines, I hope you understand how important it is that we follow what is happening in the housing market.

Please read on for a summary of the top personal finance news stories for the week beginning 1st June 2008.

Sunday 1st June

Store card use on the rise – This week the chief executive of a major high-street retailer revealed that store card use is increasing. While this doesn’t necessarily mean that more people are struggling to make ends meet it is somewhat worrying nonetheless.

The Annual Percentage Rate (APR) that store card users have to pay on outstanding balances is approximately 30% for most cards. Although store cards often offer attractive deals and benefits, because they have really high APRs it is usually better to look for alternative sources of credit when needed to help you meet a short-term cash flow problem. Have a look at our Borrowing section to find out more about the options available to you.

Monday 2nd June

250,000 in negative equity –According to Citigroup, a leading investment bank, a quarter of a million households in the UK have slipped into negative equity (where the current market value of the home is less than the size of the mortgage owed) since the start of the fall in house prices at the end of 2007.

Thursday 5th June

Interest rates held at 5% - The Bank of England’s Monetary Policy Committee (MPC) kept interest rates at 5% last Thursday. While there were calls from some quarters for the base rate to be cut to help to combat the increased cost of borrowing money and to stimulate consumer confidence, most analysts expected interest rates to be held.

The key reason for this is inflationary pressure. With the Government’s primary measure of inflation, Consumer Price Inflation (CPI), above the 2% target – it’s currently at 3% – the MPC is left in a difficult situation. Cutting interest rates would most likely lead to even higher inflation. Basically, the MPC’s hands are tied; they would like to cut the base rate but a key drawback of doing that would be further inflationary pressure, which is not something they desire.


Prepared for Moneybasics by Jason Taylor, Advocacy Officer (Credit Action).