Falling House Prices Hit Secured Loans

House prices across the country are slowing and expected to fall over the next couple of years. Everyone by now should be aware of this fact, but are we really aware of the implications?

It seems not, as a recent survey conducted by the BBC revealed that the majority of Brits welcome a fall in house prices. Only 22 per cent of those questioned wanted house prices to rise, while 46% felt that they should stay the same and 28% wanted prices to fall.

A fall in house prices directly affects people wishing to move house. For people climbing up the property ladder, a fall in house prices is beneficial as larger homes will fall more in value than their current smaller property.

First time buyers entering the market also welcome the slowdown as houses become more affordable.

However, for people wishing to downsize, a fall in value is not welcomed as they will lose out. This is a particular concern with regard to the elderly, who often downsize in search of more affordable living.

There are also many effects that a turndown in the housing market has on the wider economy which might make people less inclined to welcome a drop in house prices.

Borrowing is severely affected, most obviously lending on secured loans. As house prices fall, equity available to homeowners falls also. Regardless of the amount your original mortgage was for, borrowers will only lend up to the current value of your property.

As secured loans become less valuable, lending across the board is also affected. Lending is reduced with great impact on spending.

For our economy to be buoyant we need consumer confidence and high levels of spending. With a fall in house prices and drop in borrowing of homeowner loans, that consumer confidence is lost.

Even those who do not hold homeowner loans tend to cut back on spending as a result of a fall in house prices. The simple knowledge that your house is not worth as much as it used to be is often enough to make consumers think twice about luxury spending.

Just as a rise in the value of our home gives the illusion of wealth, a fall in value has the opposite affect on us as consumers.

Even for those first time buyers, the fall in house prices may not be such a good thing once you dig a little deeper. While the price of the property by itself is cheaper, the cost of mortgages has risen in response to the dwindling market.

Many feel that the knock-on effect that a fall in house prices has on secured loans is ultimately a good thing, reducing our excessive borrowing as a nation. At the moment total national borrowing is valued at £1.4 trillion, a massive amount by any measure.

While these high levels of borrowing are risky, they are also a necessary part of our economy. The economy is based on lending and a cut back on lending has huge implications for the economy.

Carys is an author of several articles pertaining to Secured Loans. He is known for his expertise on the subject and on other Business and Finance related articles.