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House Prices Falling – Good News or Bad?

Whatever looms on the economic horizon for the UK, it will inherently spell outright disaster for some and rich pickings for others. In various corners of Europe, political and economic unease is prompting the kinds of headlines that are making investors on a global basis more than a little nervous. But as far as the UK is concerned, Brexit really is the be-all and end-all of things for the time being.

The effect the furore has had on the property marketing being no laughing matter. Depending on which side of the fence you’re on, of course.

A new report published by Nationwide found that the past month brought about yet another drop in UK house prices – this time by an average of 0.4%. This is not only the second consecutive month to bring about a fall in property values, but also the largest monthly fall in over five years. As it stands, the average price of a home in the UK now sits at £207,699.

The noted cutback in consumer spending combined with higher inflation and the prospect of Brexit are all having an impact on the housing market. There’s also been a rather dramatic fall in GDP, having fallen to 0.3% – not the kind of thing that makes for positive reading on the campaign trail.

A Two-Sided Story?

Given the fact that mortgage rates have been hovering around record lows for some time now, the fact that the property market is showing signs of weakness is all the more troubling. This, combined with the fact that unemployment is also at an impressive low – another factor that should be boosting the strength of the housing market.

But it isn’t, which means for the time being at least there are a lot of homeowners and investors being forced to watch their properties haemorrhaging money like there’s no tomorrow. Though as already mentioned, bad news for some is good news for others.

Obvious, first-time buyers aren’t going to be too upset about the prospect of house prices falling at least a bit. But at the same time, neither are those looking to play the long game. As far as most analysts and economists are concerned, the current doom and gloom will prove to be temporary at best.

For example, if the upcoming general election brings about a strong and trusted new government, things are expected to perk up significantly. Likewise, if Brexit doesn’t turn out to be as disastrous as many expect, it could result in rapid acceleration of property values. The slight caveat being that by this time, record-low mortgage rates will have no doubt been wiped off the map for good.

So it remains a bit of a catch-22 situation – as is always the case where investments are concerned. Rock-bottom mortgage rates coupled with falling property prices should represent a no-brainer. But given what’s occurred over the last 12 months alone, taking for granted anything that might happen over the next year or so really isn’t the smartest idea.

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Banks Tighten Up On Credit Card Lending Restrictions

Any increase of activity In consumer spending can only be considered a positive thing in terms of getting the economy getting back on its feet. It stands to reason, that the more UK products and services the average British consumer decides to invest in, the better the economy will perform as a whole. However, when an increase in public spending leads to excessive levels of personal debt, the situation stops being beneficial and becomes something of a serious economical problem.

According to recent reports, it seems that a large percentage of consumers spending over the last 12 months have been a direct result of increased personal borrowing. In fact, a recent report published by the Bank of England suggests that UK borrowing has gone somewhat out of control during the past year, with borrowing growth exceeding 10% within the past 12 months alone. With most of this figure has been attributed to credit card borrowing, the UK banking sector has decided to tighten up on credit card lending across the board in order to help rectify the situation.

The official Bank of England warning states that banks could face an even bigger problem from consumer debt than mortgage lending. However, is this really the fault of the British public? The recent uncertainty following the Brexit vote saw many banks trying to tease consumers back into borrowing by offering some of the lowest credit card rates that the UK has ever seen. With more and more people applying for new credit cards and with a similar increase in the rate of approval, almost a third of all credit card lenders have decided that the time has come to reverse the current trend by taking a much more restrictive approach when processing new applications.
Many leading experts are pleased with this decision, claiming that a lack of tighter restrictions could prove to be a serious threat to borrowers and lending facilities.

“The Bank of England will be pleased to see lenders tightened credit scoring criteria for unsecured lending in the first quarter and expect to tighten them significantly further in the second quarter (particularly for credit cards),” said Howard Archer, chief UK and European economist at IHS Markit.

“If the fundamentals for consumers do weaken further as expected over the coming months, it is vital that banks adopt tight lending standards in granting unsecured consumer credit, or it risks causing serious debt problems for the economy. This would be reinforced if the Bank of England felt compelled to raise interest rates due to mounting concern over the potential inflation overshoot.”

With the short and long-term effects of Britain leaving the EU remaining something of an unknown quantity, credit consumers are now being advised to take extra caution before deciding to borrow beyond their means. Although unemployment and interest rates are both at the lowest levels they have ever been, it is impossible to foresee how the situation will change over the next few years. It is essential, therefore, that borrowers do not get into excessive amounts of unnecessary debt in the meantime.

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