The economy squeeze: what does it mean?

Petrol and food prices have rocketed, mortgage refusals are at a new record high and house prices are on the down – but why is all this happening? Between April 2007 and April 2008, petrol prices rose by a massive 17% on average, whereas food prices also saw an increase of nearly 7%. From May 2007 and May 2008, house prices dropped by 4.4% and when these factors are all considered in conjunction with one another, the outlook for the UK economy is very bleak.
Inflation is at an 11-year high of 3.8% which is considerably higher than the government’s target of 2%, meaning that a rate cut is highly unlikely, and the Bank of England has predicted a rate of 4% before 2009. These latest figures suggest that the UK economy could be heading for a recession. Industrial performance has already fallen for Q1 and Q2 of the year and studies show that growth for Q3 has almost ground to a complete halt.
Although house prices have not fallen dramatically, there doesn’t seem to be much respite for the market in the future and as of February this year, building societies such as Nationwide and Halifax were reporting negative growth, whereas previously growth had simply been slowing, yet still positive. Mortgage refusals reached a record high in June, with rates growing considerably and less people being able to justify borrowing from banks – with other costs such as petrol and food increasing disproportionately to wages. Because of this, households have less disposable income to spend with annual change down by 1.4% in the past two years.
Recent years has also seen an increase in the number of companies that will purchase your house from you and then sell it on, or allow you to sell and rent back your home. Home-owners receive a substantial percentage of the sale price whilst still being able to remain in the home, acting as tenants. If the credit crunch worsens, the UK economy might see another large influx of this type of company as people look for new ways to sell their home fast.

The author of this article recommends Swift Capital for if you are looking to sell and rent back your home and also offers information for landlords who might be selling with a sitting tenant.