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Market downturn has big impact

We have been hearing opinions about the state of the UK housing market for many months now, but it's hard facts that put the real situation into perspective. Owning your own home in the UK is not the sure fire investment winner it once was.

After year on year of rising house prices in the UK, with annual growth rates approaching 10% most years recently, the dramatic change in fortunes has come as a huge shock to many quarters and the effects are still being felt. You would have thought that the impact of the credit crunch that started in the latter half of last year would have been played out by now, but that's not the case. The scale of the situation is still surprising the most experienced analysts as can be seen by big falls in equity values in several big home builders today.

When house prices were rising there were plenty of people seeing big benefits from the situation. Of course demand had been strong for new homes and with rapidly rising prices, home builders could easily make healthy profits. But that comfortable situation has reversed significantly. The shares of two of the UK's biggest home builders, Barratt Developments and Persimmon now stand at 7% and 28% of their value 12 months ago respectively.

Also for anyone looking to take out a loan and use the equity in their home to secure their borrowing, the situation is very different to that of 12 months ago. House prices in the UK have already dropped by an average of 4% against prices this time last year and they are still falling. That is reducing the amount of equity a potential borrower has available to them to act as collateral for their loan.

Another factor is nervousness about future house prices. Loan providers felt very confident about using home equity as security during the times of rising prices. Many lenders were even happy to provide loans in excess of 100% of the available equity. Those loans are no longer available and many providers of secured loans are restricting their Loan to Value (LTV) thresholds to figures as low as 60% now.

That makes finding a large secured loan quite difficult at the moment and other factors like a healthy credit record are becoming very important.

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