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Financial Services > Mortgages > House Prices > House Prices and Mortgages

House Prices and Mortgages

House prices and mortgages guide

House prices and the state of the property market have a close relationship with mortgage lending. Between the late 1990s and the mid 2000s, house prices soared in the UK, increasing dramatically both in property hotspots such as London and in many areas around the country.

This boom in the property market was accompanied by a period of cheap credit, lower interest rates and relaxed lending criteria.

Niche mortgage sectors such as adverse credit lending and buy to let also boomed in this period. However, this period of prosperity slowed when the global economic downturn and the credit crunch hit. The financial crisis was initially sparked by problems in the American sub-prime mortgage lending market.

During 2008, a tighter mortgage market appeared in which lending was more restricted. Poor economic performance coupled with rising unemployment meant housing transactions fell as would-be homeowners were not willing to commit, leading to a fall in house prices.

In the year to April 2011, Halifax said house prices were down 3.7%. However, low interest rates mean mortgages are affordable and there are signs that house prices are stabilising.

In our House Prices guide, we look at:

  • Negative Equity What negative equity is, how it affects your mortgage and finances, and how to avoid falling into negative equity.
  • Dealing with Negative Equity Some experts have predicted that one in four borrowers may find themselves in negative equity.

Why does it matter what house prices are?

If you're happy where you are and have a small - or no - mortgage, then it doesn't really matter what price your house would command. But if you want to move, it does. And if you've got a large mortgage, then if the value of your house is less than the mortgage is for you'll find it very difficult to remortgage.

If you have a mortgage that's bigger than the value of the property is secured on then you are in negative equity. This means you have no equity - cash - in your home and actually, you owe your lender more than its value, as explained in the negative equity section.

What other problems could there be?

Negative equity could eventually result in repossession. If you fall into negative equity and can no longer afford your mortgage repayments (for example, if you've lost your job or come to the end of a fixed rate deal and repayments have shot up) then you may end up in arrears. If the housing market is slow, you may not be able to sell your home and that could mean the lender repossesses it.

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