Losers and Winners from Falling House Prices

Readers Question: Can you explain who is the loser are and why others may gain when house prices fall?

Those Who Gain From Falling House Prices

First Time Buyers Trying to Get on the Property Ladder. House prices have fallen at least 15%. This means the average house is about £20,000 cheaper. This reduces their long term mortgage repayments and standards of living. (The problem is that although house prices have fallen, it has become more difficult to get a mortgage, but, this might change in future)

Homeowners Who Wish to Upsize. If you live in a modest two bedroom house in the north but wish to move to a 3 bedroom house in London, it is now easier. This is because a 20% fall in a £100,000 house means you receive £20,000 less. But, a £200,000 is now £40,000 cheaper. Therefore, the move is now £20,000 cheaper. This might benefit couples who have more children or need to move to London. (House price falls have been strongest in areas like London.

(Renters. If you rent, lower house prices could lead to lower rents. However, because no one wants to buy, demand for rented accommodation is strong, therefore rents are not falling, but increasing. However, if the fall in house prices was permanent, rents may follow house prices in the long run.)

Those Who Lose From Falling House Prices

People Who Bought a House at the peak. If you  bought a house in July 2007, you will have seen a big fall in the value of your house. This leaves you with negative equity (Home value less than the mortgage outstanding) This is particularly a problem for those forced to sell their house because of unemployment. It is even more of a problem for those who got 100% or 95% mortgages.

Those Who want to downsize. This is opposite to the argument for those who want to upsize.

Estate Agents. Lower House prices mean smaller commissions. Furthermore, housing transactions has slumped giving them two problems.

People Who Remortgaged to Buy 2nd Homes. Some people bought housing as an investment in the expectation of rising prices. They are now left with negative equity.

Reverse Mortgages. Some elderly people were relying on their house value to provide for their retirement through a reverse mortgages which unlocks the value of the house. There value is now less.

People Who Are Unaffected by Falling House prices

People who have no intention of selling. If you buy a house and have no intention of moving in the next few years, lower house prices don’t have much effect. Although house prices are lower,

Renters. Renters are mostly unaffected by falling house prices.

See also: effects of falling house prices