Confusion continues towards the housing market
After apparently having had a tentative recovery from the worst effects of the credit crunch and the recession that followed, the housing market appears to be falling again. Given that house prices have recovered around 7% from their recent low, it is possible that much of the gain has been lost since then. Of course, that depends on the numbers you take into account …
RightMove suggested that prices fell 1.1% in September, having fallen 2.3% in the previous two months. Nationwide reported a 0.1% increase in September after a drop in August, but did not expect a significant drop in property values. Against this, the Land Registry calculated that prices rose 0.3% in August, while Halifax recorded a 0.2% increase for the same period.
These mixed messages, combined with a low level of transactions, seem to suggest a stagnant market. Several analysts have predicted that prices will fall further and be significantly lower by the end of 2011. Many consider this to be not a bad thing, as the property is still overvalued and will attract more buyers to the market.
Whatever the real picture, it’s clear that home builders continue to struggle, with just 120,000 homes built in England last year, the lowest level since 1924. A better indication of future prospects is the level of mortgage approvals, which fell for the fourth month in a row. The Council of Mortgage Lenders announced that gross loans in August, at £ 11.4bn, hit their lowest level in a decade. This suggests that prices and demand are unlikely to rebound in the coming months.
The reasons for the low levels of activity overall are easy to see, with the threat of spending cuts and reductions in public sector budgets leaving potential buyers unsure of the future. These problems are believed to likely have the greatest effect in areas outside London and the South East. London property prices and desirable locations for travelers are seen as more resilient and the market is expected to hold up better there.
Future market activity house builders London may be negatively affected by a lack of mortgage financing, as banks build up their reserves and begin to repay support funds provided by the government. The Financial Services Authority’s proposals for more responsible lending may also restrict the number of loans that are made. The FSA estimates that 17% of mortgages in recent years would not have been granted if its proposals had been working. The Council of Mortgage Lenders, however, questions these figures, claiming that more than half of all loans, amounting to some 3.8 million perfectly valid loan agreements, would not have been granted. This level of restriction would obviously have very serious implications for the construction industry.
The key to getting home construction moving again is undoubtedly encouraging large numbers of first-time buyers to the market. Selling homes at the low end will allow existing homeowners to move up and have an impact on the entire market. This may require prices to fall further, as well as greater confidence through improved economic conditions.
What first-time buyers also need is access to affordable mortgage funds. A survey by the Council of Mortgage Lenders found that more people than ever want to be a homeowner, and three-quarters want to achieve this goal in two years. The Daily Telegraph reported that first-time buyers are charged up to £ 2,000 per year more than other buyers, although MyMortgageDirect believes that higher fees are charged simply because a low level of deposit is provided. The removal of the Open Market Home Buy and MyChoice Home Buy schemes may not have helped the new owners, although there are other options available.