Folks need to think of the bigger housing picture - David Alexander

And so it begins. Not a property recession as such but almost certainly a correction in the market following the decision last week to raise bank base rate to 0.75 per cent.

David Alexander Head of DJ alexander

Given the price hikes of the last 18 months – totally unexpected as they were – some might say a cooling of prices will be no bad thing and, in principle, I tend to agree. For most home-owners buying with a mortgage, the value of their properties will still be more than the outstanding loan on it; but we should never lose sight of the danger of house-price deflation and a subsequent rise in negative equity across the country (South-east England included). With that, not just home-owners, but the entire economy, starts to suffer, one major consequence being a substantial rise in unemployment.

For someone of my vintage, a base rate of 0.75pc seems, quite frankly, piffling. During the 1980s Margaret Thatcher changed the British economy from the “sick man of Europe” to one of its powerhouses. But to get elected first time round she felt compelled to make promises to honour large pay reviews in the public sector which, of course, fuelled inflation and pushed interest rates as high as 17pc.

Still, as academics focussed on the poverty industry constantly tell us, “everything is relative” so in real terms last week’s rise in base rate to 0.75pc will not be inconsequential. For example, someone with a 25-year repayment mortgage of £200,000 will be £336 a year worse off as a result – and £852 worse off since the earlier interest rate rise back in December. Should further rises push base rate to around 1.5pc to 2pc (still exceedingly low in historical terms) the negative effects on household budgets are not difficult to imagine. And that, of course, is in addition to the rising cost of energy and consumer goods in general.

It’s in circumstances such as this that people start to feel “squeezed”, which means, among other things, putting plans to “trade up” on hold (or even, in some circumstances, to “trade down” for that matter). Need another bedroom for our growing kids? Ideally, yes, but I’m sure we can put up with them sharing their current one for another year. Need more general living space? Again, that would be ideal but it may be possible to declutter and rearrange the furniture to provide more room…..or perhaps extend out the back, which of course would not attract stamp duty.

For those for whom personal and professional circumstances compel them to move, however, all is not lost. A reduction in prices does not necessarily mean the market has seized up and any monies sellers might lose on the roundabout they will gain, as buyers, on the swings. Folks just need to sit down and have a good think about the bigger picture and ask themselves not how much will I get for my house but how much, in net terms, will it cost me to move to another one?

If all else fails there is always the option of renting out an unsold property to avoid the cost of a bridging loan – as many people did successfully during the housing crisis of 2008 and its aftermath. However it is vital to receive permission to do so from one’s lender and to be aware of the many government-inspired landlord regulations that have been introduced since then.

Talking of the rental market, a “correction” in prices might not be a bad thing. Landlords with a buy to let mortgage will, of course, pay more to their bank or building society but they could benefit for an increase in demand for rented accommodation both from new tenants and from younger singles and couples delaying their plans to switch from renting to owner-occupation.

Every cloud, as they say, has a silver lining.

David Alexander is managing director of DJ Alexander