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It is fair to say that over the past ten years, the UK has been going through a property boom with sky rocketing property price growth and burgeoning rental yields. However, last summer this all changed dramatically with the onset of the credit crunch which began in the trailer parks of America where poor Americans borrowed mortgages they couldn’t afford.

With many defaulting on their mortgages, the resulting banks lost billions of pounds and these financial losses have reached far and wide which has brought chaos and a lack of available credit to the global financial markets.

With many banks losing Billions of pounds and the lack of available credit drying up, means that banks are no longer willing to lend cash to anyone and that many potential homeowners will be unable to get a mortgage.

This along with the increase in interest rates over the past 18 months has meant that demand for property in the UK has fallen and with it a decrease in property prices for the first time in over two years.

In December 2007, property prices in England and Wales fell by 0.4% the first fall since August 2005, which has prompted many industry analysts to jump to the conclusion that the days of huge house price inflation is well and truly over.

Many property market analysts and estate agents have announced that they expect house prices to drop by as much as 5% in 2008. This might not seem much, but when you consider that the average house price in the UK is around the £200,000 mark a 5% fall will mean a £10,000 drop in the value of the average property which is significant.

With falling demand for property also means that properties are selling at up to 10% below their market value which is great for property buyers but for home owners it means they are going to have to be very realistic on price.

But the burning question is what is going to happen to property prices in the short to medium term? This is a difficult question to answer but I hope to add some clarity to the possibilities.

There is no doubt that at the very best, property prices are likely to remain stagnant on average in England and Wales during 2008. In some areas we believe that falls in property prices maybe as high as 4% or 5% and these areas are likely to be the ones that have seen the highest growth over the past few years such as London and the Southeast.

The UK is currently seeing a property price ‘correction’ but the positive we believe home owners and property investors can take is that the UK is unlikely to see a property price crash but more of a cooling off in property prices over the next 12 to 18 months.

A property market crash is unlikely in our opinion mainly because of the simple fact that there is still a chronic shortage of housing and with the UK’s population set to top 70 million people by 2018, property prices are likely to increase once again simply because demand is greater than the current supply.

In the medium term, we believe that property prices will once again begin to rise once the credit crunch is over and interest rates have fallen meaning cheaper available credit. And although we are unlikely to see rampant house price inflation for some time, annual property prices could still rise once again by 5% to 10% per year in say 18 to 24 months time.

In conclusion, Grant Delmege from Zone 4 Property who are property investment specialists and property market analysts, says “A property market crash is ‘unlikely’ due to the fact that the demand for housing is still greater than the current supply”. He goes on to say that “Once the credit crunch has passed and interest rates have fallen from current levels, we will once again see further rises in property prices”.

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