The sub-prime rate crisis in the US has plunged its housing sector to an unprecedented crisis. The mortgage market difficulties is set to trigger a global effect with David Miles, the chief UK economist of Morgan Stanley warning the UK government that the housing prices in the country will plummet by 10% next year. This would be the biggest annual decline since 1969.
The predicted drop in property prices will result from the combination of the five Bank of England interest rises. Last week Mervyn King, the governor of the Bank of England warned that financial strains would force major banks to reduce supply of credit by increasing the cost of borrowing.
Nationwide Building Society figures showed last week that in twelve years property prices fell at the highest rate on last November. In addition, the mortgage approval levels fell to the lowest level since February 2005.
Economists warn of rather grim pictures that will also increase economic disparity in the country and strangely, the financial strength of the aged will actually improve. Older people who bought houses when the house prices were low will be comparatively well off compared to the younger generations. People over sixty years of age will own two-thirds of Britain’s housing wealth within two decades. Soaring house prices will see an explosion of wealth of aged homeowners.
After deducting mortgage debt, the average pensioner homeowner is sitting on housing wealth worth ₤265,000. By contrast, their children are finding it increasingly difficult to own a house.
Source:daily mail
Image:mariner’s house
