April 7th, 2008
07:27 AM GMT
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A lot of focus on the problems in the U.S. housing market. But conditions are tightening in the UK housing market.

The number of mortgage products has fallen by nearly 40 percent in the past month. The Bank of England has cut rates twice and is expected to move again this week.

But because of the credit crunch, mortgage rates on average are higher than they were last August. Tougher lending conditions, tighter money means the number of mortgage approvals is nearly 40 percent lower than it was at the same time a year ago.

Nationwide, a big mortgage lender in the UK, is forecasting a drop in house prices this year. It says house price growth is now at its slowest level for 12 years.

Property is an obsession with the British. There are prime time television programs devoted to it. And at the other end of the spectrum, plenty of articles in recent years about how difficult it is for first time buyers to get on the property ladder because of the run-up in prices.

Since 1988, house prices have risen more than 300 percent, about twice the rate of the United States.

Are UK house prices about to crash? Some predict they will, but I don't think so. Will they slow further? Absolutely. For those priced out of the market it couldn't happen soon enough.

In the last housing bubble, prices in the UK averaged five times earnings. This time around, it's closer to six times earnings. One analysis suggests prices have come down some 10 percent from the peak.

But there's still a disconnect between sellers who are still holding out for prices achieved earlier last year and buyers who are more cautious about the market.

That alone means there's further scope for prices to fall, as the reality of a softer housing market will force more sellers to face up to reality.

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