'I can't afford a house now, but this is going to put a house within reach!' It won't.
Depends on circumstances. DH and I looked at this, based on a 25% drop. It would mean difference between a small family house and a reasonably good sized one. Why? Cos we have enough equity to swallow a drop in market but have sufficient income rise to be ready to go up the ladder. The thing that's prohibitive for us in terms of affordability is linked to our multiple max.
Example: If we have £50,000 in equity and a 4 bed detached is currently £250,000 and our household income £40,000 that's 5 times our theoretical income.
If we lose thirty percent equity we still have £35,000. But the £250000 house becomes £175,000. That's 4.375 times the household income and therefore potentially easier to get a mortgage for that multiple.
In theory.
In practice it might not be the case, as lenders are likely to squeeze mortgage mulitpers and you might see interest rates shift upwards because of the risk involved.
But there is also the effect that people trapped at a lower tier in the housing market being able to move up, might take pressure off the bottom of the market by producing more liquidity (movement) in the market.
And of course cheaper houses, might just look like a bargain to buy to letters who home owners can't afford to compete with. And you've got the problem of negative equity for many too.
Some people definitely would benefit. Others would suffer massively - particularly in areas where houses are already cheaper or the market less stable or already has had particularly acute house price drops since 2008 which they haven't recovered from yet.
It really is a mixed bag, with various winners and losers. And that's the key point: winners AND losers.
Our personal position means we can wait it out till the dust settles if need be. The one thing we don't want to do is overstretch on the mortgage - we've already bought at top of market once (Though even then, that was a conscious decision as we knew a recession was about to break - unlike Gordon - and planned accordingly. That would be a massive error to do again. Too risky. We'd lose more in compound interest on the mortgage buying just before a crash than we'd lose in equity after a crash.
I think there are too many saying that'll make it cheaper who don't have a clue about interest rates, compound interest, equity or affordability based on the multipler of your household income. And tbh that ignorance led to Lloyd's and TSB and Northern Rock in the first place...
... People saying "oh well the bank wouldn't led it if I couldn't afford".
But yes Winners by default also mean losers.