2008
(18/07/2008) Middle Britain House prices to drop £40,000 by Christmas
- Middle Britain decline to outstrip housing market average
- Some to face negative equity risk
- 9% to struggle to meet mortgage repayments
Middle Britain homeowners face a 'peak-to-trough' crash in house prices over the next six months as some £40,000 is wiped off the value of their homes before the year is out, according to a new report published today.
The forecast from AXA Financial Taskforce1 shows that property prices in Middle Britain2 will fall as much as 18 per cent by the end of the year as the economic downturn takes its toll on one of major pillars of the UK consumer economy.
The figures also show that Middle Britain will experience a sharper fall in house prices than the housing market as a whole, which is expected to see homes drop in value by only 12.8 per cent by 2009.
And according to the AXA Financial Taskforce, a small proportion of Middle Britain households could also be at risk of going into negative equity.
The report suggests that a typical Middle Briton household that bought a property in March this year could have only £15,000 worth of equity in their homes by September – just 9 per cent of the average property’s value – and will therefore be most vulnerable to negative equity.
Steve Folkard of the AXA Financial Task Force, said: “We expect a very tough 18 months for Middle Britain’s housing market. Middle Britain may have managed to weather the storm before now, but that resilience is being seriously tested by the ongoing effects of the credit crunch.
“Negative equity is something we all remember from the early 1990s and there’s nothing to suggest that Middle Britain will be caught up in a crisis of that magnitude. However if you bought a home earlier this year you should bear in mind that the equity you have in that property could go down before it goes up.”
The AXA Financial Task Force report also shows that the rising cost of borrowing and the increasing cost of living will make it increasingly difficult for Middle Britain homeowners to meet their mortgage repayments.
The figures show that some nine per cent of homeowners with mortgages in Middle Britain will have difficulty meeting their mortgage payments in the coming year.
Steve Folkard added: “Middle Britain is not immune to an economic downturn and it is at times like this when simple money management and financial planning can really help. People who are struggling to make their mortgage repayments should avoid burying their head in the sand and should seek to find a solution. Speak to your lender if you have a problem meeting repayments before the problem gets out of control.”
According to the AXA Financial Task Force Middle Britain’s finances have been squeezed over the past two years as economic conditions have deteriorated. Whilst disposable income levels have increased by five per cent over the last two years, Middle Britain’s spending power has stagnated, dropping two per cent thanks to the high levels of inflation in essential goods and services such as fuel, food and drink and heating.
In fact debt advice centres in Middle Britain heartlands have seen as much as a 500 per cent increases in enquiries with people on salaries as high as £70,000 seeking advice3.
- Ends -
Notes to editors:
1AXA Financial Task Force consists of independent psychologists, economists and industry experts. Middle Britain definition work was undertaken by the Centre for Economics & Business Research as part of its ongoing remit as a member of the AXA Financial Task Force. John Ward, managing economist for the CEBR, is a member of the AXA Financial Task Force.
2Middle Britain households are defined as those enjoying a combined household annual income of between £40,000 to £100,000. This definition is the result of a study published earlier this year by the AXA Financial Task Force and the Centre for Economic & Business Research. Middle Britain households constitute one in five of all households
3Transact report into debt advice centres 2008
AXA work on financial education
AXA has been at the forefront of financial education for over three years. It is committed to exploring what the financial problems of the nation really are, and how we might best motivate individuals to solve them.
- AXA Avenue
AXA’s year long financial social experiment ran from October 2005 to October 2006 using 20 households in Brighton. Half of the households were given access to independent financial advice while the other half were left to their own devices.
The findings revealed that the ten households that received financial advice were collectively £50,000 better off at the end of the experiment, with massive savings increases and encouraging levels of debt reduction. And the participants were able to make these savings by spending just one hour a month on their finances. In contrast, the households left to their own devices actually got collectively poorer. They frittered away a quarter of their savings and the group saw a three per cent reduction in their net wealth. - My Budget Day
The AXA My Budget Day campaign was designed to encourage and motivate all individuals to spend an hour a month on financial planning, regardless of their financial circumstances. AXA worked with the CBI, Unite and other business leaders to encourage UK plc to give all employees an hour off work to spend on their finances. It is estimated that around 250,000 employees took part in My Budget Day on 21st November 2007. The website, www.axa.co.uk/mybudgetday, provides all the tools and information to help individuals to kick-start the financial planning habit. - Decision Technology research
AXA recently published the results of a financial research programme undertaken by Decision Technology, the experimental psychology specialists at the University of Warwick and University College London. The research explored how the financial community can best motivate individuals to convert their good intentions into action when it comes to addressing their personal finances.
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About AXA
AXA is a world leader in financial protection and wealth management, with major operations in Western Europe, North America and the Asia/Pacific area. AXA services 50 million customers throughout the world (individuals and businesses). In total, the AXA Group has approximately 110,000 employees and distributors worldwide, working in around 50 countries. AXA UK, a wholly owned subsidiary, operates in the UK and Ireland, and occupies leading positions in its main markets: life & pensions, health insurance and general insurance. AXA UK has been actively involved in the thinking around financial capability and generic financial advice, in particular through the AXA Avenue study which identified the positive impact on consumers of receiving financial advice.