The continuing uncertainty over the Greeks financial crisis has many people worrying about how their financial future will be affected. If Greece ends up leaving the Eurozone, as many economists predict, the knock-on effects on the UK could be disastrous.
There has already been a large drop in the number of mortgages and homeowner loans available to UK residents, which means many Britons are unable to buy unless they already have a sizable deposit in their savings accounts.
If we are beginning to see the effects before Greece has even left the euro, how will a full-blown Greek default affect the UK housing market?
The main thing to realise is that whatever predictions are made before the ‘Grexit’ actually happens are pure conjecture. The reality is that no one knows for sure what will happen. As long as the situation is handled efficiently and effectively, there should be a minimal effect on the UK housing market. However, even with the most prudent of preparations, there will inevitably be some repercussions for the average home owner or first-time buyer.
The Crisis in Europe
The deep austerity measures and record levels of unemployment in Greece have led to large numbers of people taking to the streets and demonstrating. 70% of Greeks do not want to leave the Eurozone but the continuing cuts that will accompany a further bailout by the European banks means that a return to the drachma may be inevitable.
If the drachma is re-introduced it would devalue incredibly quickly, leaving no other option than for Greece to declare bankruptcy. As the EU and IMF have already lent Greece in excess of $110bn and France alone is owed $41bn, this default would have an enormous effect on other countries in Europe.
Confidence in the Eurozone is already low but such a massive default on these debts would leave other struggling countries such as Spain and Italy unable to borrow any more money. There is a possibility that their economies would also reach a point of no return, leaving the whole of Europe in a dire financial state.
Should they also have to be bailed out by other European countries, the whole market will become even more unstable and the financial collapse will quickly spread, even in countries with relatively strong economies.
How This Affects the UK
As the EU is the UK’s biggest trading partner, any failure in the market will undoubtedly have an effect on the already weak British economy. Further jobs will be lost and this rise in unemployment will affect every part of the economy.
The banks are already far less likely to lend money to first-time buyers than they were five years ago. This has caused the UK property market to slump. Should there be even higher levels of financial insecurity due to the Eurozone crisis, then the amount of money available to borrow will fall further still.
Ironically, there is one part of the UK where the property market continues to boom. Cash-rich buyers from other countries are snapping up luxury properties in London as it is seen as something of a safe haven compared to the rest of Europe.
In the rest of the UK, property prices continue to fall, leaving many ordinary homeowners in negative equity with properties that they are unable to sell.
The effects of a Greek default could potentially be catastrophic but it is important to bear in mind that it hasn’t happened yet. The EU is committed to ensuring that it doesn’t ever happen and there are strategies being put in place to ensure that this disaster is avoided at all costs.