How will the Eurozone crisis affect the Market?

publication date: Nov 9, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

BBC Radio Nottingham Property Market Update

How will the Eurozone crisis affect the Market?

Listen again to Kate Faulkner (approx 1hr 13 mins in)

There are some predictions that the current Eurozone financial crisis could wipe 10% off property prices in the UK, according to Taylor Wimpey. However, the real answer to how the crisis will affect you comes down to what problems the Eurozone will cause the UK. 

The result of a continued Eurozone crisis is twofold for the UK. Firstly, should countries such as Greece and Italy ‘default' then this is likely to cause another credit crunch. The impact this will have is mainly on the provision of lending, as happened in 2007/8 when many mortgages were pulled and stringent criteria such as needing a 40% deposit to buy a home or have as equity to access reasonable mortgage deals. So a continuing crisis in the Eurozone is likely to make it tougher to secure mortgage lending, especially for the likes of first time buyers who have smaller deposits. 

So if you own your property outright, have 25-40% deposit or equity in your home, then the Eurozone crisis is unlikely to have a major impact on you. However, for anyone in negative equity or hoping to buy with a 5-10% deposit, it could be tough to buy should the crisis get worse. 

From a seller's perspective, less buyers being able to access funds could mean prices will fall further and there is evidence that this is already happening as some areas across the UK are already falling below the lows of 2009. The caveat to this is that if less people put their properties on the market - as happened in 2009, then demand and supply will continue to match and prices could remain stable in areas where this is happening. 

The second issue though could have more of an impact. This is the loss of growth in our economy due to the loss of growth in the Eurozone. Falls in growth can mean falls in jobs and an increased threat of unemployment. Regular ‘bad news' about growth and rising unemployment will knock people's confidence and could, if rapid, cause those in financial difficulty to be forced to sell their property via repossession, and it's this type of result which could drive prices down further. 

Overall, the likelihood is that the Eurozone crisis will go on for some months unless some ‘miracle' bailout package can be agreed. This in turn will make banks nervous to lend and with a lack of consumer confidence, the winner in the property market will be the rental sector. 

Longer term though, what this crisis means is that we are definitely in for a long haul for both our economy and for house prices to recover to 2007 heights. 

Rental Property Prices

Next year is likely to see rental rises on some properties, while others which aren't well maintained or in the best of areas stay the same.

Rents typically track wage rises (or falls) as well as demand and supply. In 2012 though we are likely to see some changes to this as those with higher disposal incomes can afford better rental properties while those struggling to make ends meet will have to ‘trade down' from three to two to one bed properties or even renting a room.

With a lack of rental properties available, we may see next year the issue of the UK's lack of housing stock really starting to hit the country with both properties to buy and to rent out of reach financially for many newly forming households.

For more about what's happening in the property market and help with your property project, contact Kate Faulkner at Designs on Property.


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