When Property Prices Fall, So Too Do Secured Loans,mortgages And Remortgages.

The announcement that house prices fell by almost 3% in the course of the last year, reducing properties by an average of about £4,000, is not what those in the finance sector wanted to hear.

The reports about the state of the property market are often conflicting.

One day you lifted the paper and read that the value of property was rising, only to have your hopes dashed weeks, if not only days later, when the value of property was reported to have fallen

No one really knows what to absolutely believe any more, as coupled with today’s announcement about the drop in house prices, only last week it was reported that the price of property in Scotland rose by an average over all of 1%, while in East Dunbarton, prices are supposed to have gone up by 10% which seems remarkable under the present economic climate.

The fall in house prices is a large part of the reason why the secured loan, mortgage and remortgage sector continued in the same dire straight in 2010, as it had for the previous two years, as these home loans all depend on the equity of a property, and when prices fall so too does equity.

Equity is the difference between the mortgage balance and the property value..

The tightening of underwriting has also contributed to the decline in secured loans, mortgages and remortgages.

Before the recession, property prices rose on an almost yearly basis, and as a rule of thumb, properties double in value every seven years or so, and with very lax lending criteria, many more people were eligible for these three loans than they are now.

Some building societies and banks were willing to grant 125% mortgages and remortgages.

All other providers lent at 95% LTV.

Some secured loan lenders, such as First Plus, Paragon and EPF also advanced their loans at 125% which was fine, as were mortgages and remortgages when house values were shooting up, but when they fell disastrous results ensued

All in the secured loan and mortgage industries are now hoping against hope that the property prices will increase in 2011, allowing the failing industries of mortgages, remortgages and secured loans to make the revival that is so much needed.