Home—Blog—More bad news for house prices
Mar 18, 2010, 01:14
Posted byDavid Stevenson
Comments (26)
Today's figures from the Council of Mortgage Lenders (CML) - whose members account for 94% of this country's mortgages - show that gross lending in February rose by 6% to an estimated £9.2bn.
No surprise, perhaps, after a very sluggish January.
But this could be masking a sharp lending slowdown. In this chart…
I've shown the CML's quarterly home lending figures going back to the market peak in 2007. Clearly there's already been a massive drop from mid-2007.
And it's getting worse again. To estimate the figure for Q1 2010, I've assumed that March lending will stay the same as last year. Yet even that may be too bullish. Last month saw a 6% drop on a year ago.
So the chart estimate could be too upbeat. But even if it proves spot on, a nasty double dip in lending is developing.
Over time, house prices depend on how much money is borrowed to pay them. Post-election, tax rises are inevitable. So are big public sector job losses. That means a lot less cash in pockets – or available to pay mortgage repayments.
In short, UK housing market prospects are looking anything but bright.
Published in Blog More articles by David Stevenson
By Dominic Frisby, Feb 08, 2012
By Merryn Somerset Webb, Jan 30, 2012
By Merryn Somerset Webb, Jan 27, 2012
By Merryn Somerset Webb, Jan 17, 2012
Leave a comment
(18 March 2010, 02:28PM) Complain about this comment
house prices have been massively overvalued in relation to earnings for a long time. The boom i'm prices over the last decade has been caused by people borrowing more and more credit. The uk housing Market is built on credit and that credit is no longer available. House prices should be what people can afford, not what people can borrow. Prices should now correct to a sensible multiple if earnings. Roughly 3 to 3.5 times the average annual income. The lending we see now is how it should be and prices will ajust accordingly.
(18 March 2010, 02:46PM) Complain about this comment
Mickey, why do you say that 3-3.5 times income is a sensible multiple? I know it used to be the rule of thumb for mortgage borrowing, but that's all it was. And don't think for a moment that people were not able to get far more than that if their circumstances allowed.I could easily afford four or five times income if I wished due to my particular circumstances and income; some of my friends shouldn't have been offered even 3 times.'One-size-fits-all' is not a good basis for lending policy any more than 'how much can we give you?' is.
(18 March 2010, 03:36PM) Complain about this comment
chris. I meant that the actual cost of the house should be on average about that ratio. Obviously someone with credit card debts or other liabilities should not be able to borrow the same as someone debt free with a good credit rating. Saying that I do think that lax lending policies from lenders are largly to blame for the overinflated prices we see today.
(18 March 2010, 04:29PM) Complain about this comment
I dont agree that prices will , or should be what people can afford. In fact quite the opposite, prices will be more and more out of sync with what people can afford. Ignorant house buyers will happily be sucked into longer 25 to 35 year mortgage terms to fuel upward prices. Its a sad truth that many house buyers are blinded by greed, and sold inappropriate mortgages by financial advisers who are solely motivated by recieving a big bonus. The whole system (government, banks, financial advisers) are all doing there best to keep prices rising. I am amazed how successful they have been at doing this during the last year. With a pent up demand for housing building up, its likely prices will be higher than ever before within 4 to 6 years. Then followed by another bust. Eventually the next economic catastropy (oil and food shortage) will crash house prices big time for many years.
(18 March 2010, 05:20PM) Complain about this comment
Noah, I agree that the government is doing all it can to stop prices correcting but without the frivolous lending we have seen in the past and with interest rates as low as they will go i dont see what else they can do?Property prices over the last year have, on average, doubled. (even almost triple in my area!) Have wages doubled? no. So where is the new money coming from? Credit. The credit that is no longer available and will not be for the foreseeable future. (or never again if we have learnt anything)The pent up demand has been all but exhausted over the last year. The people with money and access to credit is not infinite and is running out. This can be seen buy the increase in properties on the market over the past couple of months. Land registry data shows that tranaction levels are very low for the time of year. This is before we even consider what will happen if and when interest rates increase and job losses/wage cuts/tax increases after the election.
(18 March 2010, 05:21PM) Complain about this comment
I have heard that a lot of people who have been considering a purchasing a property are saying they are 'going on strike' putting off buying until prices are more sensible. I fully support this and cant imagine why anyone in their right mind would buy a house in the current climate
(18 March 2010, 07:57PM) Complain about this comment
Noah J. With a pent up demand for housing building up, its likely prices will be higher than ever before within 4 to 6 years.Quite wrong. This is the wrong understanding of the word demand. Demand in economics is EFFECTIVE demand. That is it does not exist without money. I want a Rolls but without money I have no effect on the Rolls Royce market. Many people may want a house, but the effect on prices will ONLY come from those who can pay. There is pent up[demand, though. Pent up demand for lower-priced houses. There is no pent up demand for higher-priced houses. Only wishes. But this is economics, not Alice in Wonderland.Mickey is right, too. It's what Mr Middleman can pay that will decide the market, not Mr Stockbroker.
(18 March 2010, 09:00PM) Complain about this comment
My wife and I are in our late 20's, renting ,earning over £100k between us. In our short lives we've done things by the book - good degrees from a top uni - worked hard through grad schemes, etc. All we can afford in London where robberies are not common place is a grotty little 1 bed flat - the type where you can sense the estate agent's own shame when they show you round - the type where you can't swing a cat and reek of damp! Frankly, there are '000's of people in this country who borrowed irresponsibly (it winds me up when people blame the banks!) & these people deserve to be in negative equity & forced to sell their homes as a result - it was the only thing that was going to return prices to a normal level. But no - thanks to the Labour, int rates have bailed them all out whilst the greedy London buy to let landlords cream off profit. Bring on a hung parliament, 50% tax and job losses - it might be our only hope!
(19 March 2010, 08:33AM) Complain about this comment
1. Loose credit due to low interest rates2. More and more households where both parents are working (never happened in history anywhere before) and paying towards the mortgage OR one wages is used solely for the mortgage, the other for 'bills' and 'food'From 1997 to 2007 house prices nearly trebled, so wages should have gone from £15,000pa to £45,000. The average wage in 2007 was in fact only £25,000 BUT if you X2 for both parents working, that's closer to £45,000 and that's a major factor most people and graphs miss. This along with the 'Loose Credit' for many years due to the .com bust
(19 March 2010, 10:54AM) Complain about this comment
"2. More and more households where both parents are working (never happened in history anywhere before) and paying towards the mortgage OR one wages is used solely for the mortgage, the other for 'bills' and 'food'"I've heard this argument far too many times recently and I really dont buy it.Households with both indivduals working full time have been common since at least the early 80's. "From 1997 to 2007 house prices nearly trebled, so wages should have gone from £15,000pa to £45,000. The average wage in 2007 was in fact only £25,000 BUT if you X2 for both parents working, that's closer to £45,000 and that's a major factor most people and graphs miss. "Surely for that to work the number of households with two fulltime wage earners would have had to have substantially increased (doubled?). Are you stating that you believe that to be the case?
(19 March 2010, 01:45PM) Complain about this comment
There is, in effect, a BUYERS STRIKE, going on in the UK property market simply because house prices are at least 30% - 40% too high and unaffordable for the vast majority of the poulation whether they be wanabe FTB'ers or current mortgage holders who wd like to move up the property ladder but can't afford to.The Buyers Strike is evidenced by the Land Registry data for completed sales and is found in cities and towns right across the country. For example the number of properties sold in Worcester each year since 2006 is as follows:2006 - 2690 properties sold2007 - 2179 sold2008 - 11802009 - 811 by end of October, so heading towards about 973 for the complete year.That is,property sales in Worcester collapsed by 64% in 2009 compared to 2006. In effect 64% of the population that would normally be buying property in Worcester have gone on a BUYERS STRIKE.
(19 March 2010, 01:50PM) Complain about this comment
In Worcester, last year, due to the BUYERS STRIKE, the 28 Estate Agent outlets there only sold 0.7 of a property per week on average throughout 2009. The Buyers Strike will continue whilst greedy, stupid Estate Agents set boom time asking prices that the vast majority can't afford. The Buyers Strike will continue until EA's start cutting asking prices aggressively (by 30% or more). The more EA's talk up the market the bigger the Buyers Strike will become.
(19 March 2010, 03:36PM) Complain about this comment
Graham, are you sure there's a buyer's strike? Or is it simply inability to get finance? Bearing in mind that most families and individuals move to larger homes, this would imply higher prices and consequently a shortfall between sale price of current home and purchase price of new one. Normally, this would be funded via a mortgage, but as we know, there is little credit available for those who actually need it.
(19 March 2010, 04:37PM) Complain about this comment
I feel that the constant references to prices reverting to "3-3.5 times income" are misleading. Surely prices reflect income AND interest rates. So whilst av. salaries have not trebled in the past 15 years, prevailing rates have approximately halved from circa 10% in 1980's to circa 4% in the last ten years (ignoring the farcically low current 0.5%); thus without any salary increase there has been a doubling in affordability in interest payment terms and hence a capacity for a houses doubling in price. Repayment of capital ? - that's a different story, and we'll worry about that...later !
(19 March 2010, 05:29PM) Complain about this comment
Interest rates have only been 0.5% for the past year. House prices had already doubled before that. We had stupidly high prices even when rates were about average. Houses are no more affordable now than when rates where 5%. Anyone who is buying a house because the repayments will be low at the moment is in serious trouble. Rates will not stay low. They can go up very rapidly without warning. If inflation gets out of control we could see rates of 15% again like the 90s.If you are considering purchasing a home you need to consider if you can affor considerably higher rates of at least 6 %.Low rates only benefit people who already have house and mortgages.
(19 March 2010, 09:55PM) Complain about this comment
I agree with Chris regarding the issue of the inability to get finance on top of that you need to consider other influencing factors such as job security, prospects and the state of some of the pension schems not to mention the economy.To my knowledge there's nothing that can identify a cyclical pattern in the housing market, wish there was, risk free investment!
(20 March 2010, 08:13AM) Complain about this comment
ChrisL and John you sound like Estate Agents talking. There is plenty of finance/credit available .... but not for the boom time prices that Estate Agents are setting asking prices at (if there was the whole global economy wd go bust again). House prices nedd to/must reflect the amount of credit available - so 30% - 40% reductions are inevitable and the Buyers Strike will cont till then.
(20 March 2010, 08:19AM) Complain about this comment
Estate Agents simply haven't reaccepted or recognised the new economic reality, and what that means for credit availability and what that means for house prices (ie house prices will have to match the reality of credit availability and hence fall by at least 30%). The Banks are shouting it out at Estate Agents and the maj of the pop that are now on a Buyers Strike are shouting out at EA's but EA's remain deaf & in fantasy land.
(20 March 2010, 11:15AM) Complain about this comment
I agree with the content of this article and a number of the comments made so far. Simple economics will dictate in the end, but my view is prices will drop at least another 10% from current levels; Unemployment is still rising contrary to "selective" government reporting, we are as a nationally hopelessly over indebted both internally and externally, the price is living is surging (just look at petrol). Tax in all forms will rise and rise until the treasury starts balancing the books. Increasing the supply of paper based money only works for a while. I believe we are truly about to witness the pound and dollar house of cards nearing their day of reckoning. The binge is over whether we or anyone else likes it or not. Falling house prices are merely symptomatic of years of financial mismanagement, by both consumers and the government.
(22 March 2010, 12:00AM) Complain about this comment
8. David.There are people in their 40s who are the same and who understand how you feel.In my part of the World, beaches and countryside, we now have endless streets of people from London coming down and doubling, trebling the price of the most grotty 2 up 2 down terraces. What went for about 50 to 60K 10 years ago now goes for 250K and last week one went on the market for 375K asking price. Nuts.Time to leave the UK I think - it is just prohibitively expensive to live here now let alone to buy a home.
(22 March 2010, 01:08PM) Complain about this comment
I see two scenarios 1) banks start to increase credit gradually as they recover. This boosts the upward house prices. This is probably what politicians and banks will try to encourage as it suits there end needs. This is also what i see happening in reality. If this occurs then prices will stabilize and gradually go upwards. The 2nd scenario is that credit remains tight and prices do have to drop a little. I would love this to happen as i am a ftb waiting to buy asap. However evidence in my area points to slightly easier credit, and upward house prices. I am sure within a year banks will be even more relaxed with credit for mortgages, as its a money spinner. And if they make a mistake we will bail them out again!
(23 March 2010, 10:23AM) Complain about this comment
The 8% rise that we have seen in house prices from Spring last year till January this year was created by the Gov injecting £300bn of taxpayers money into the mortgage market via the SLS and CGS Schemes. This has all but run out and the Bank of England has said the SLS & CGS Schemes will not be renewed. The Banks have to repay the £300bn to the Bof E by 2012 and 2014 respectively - so, going forward credit is going to become less available, not more available. On top of this we inflation rising and other factors lending large amounts of weight for the Base Rate to be raised which will lead to mortgage rates going up and thus make credit tighter and more expensive. House price indexes show house price falls, not rises.The Buyers Strike is set to get even bigger, until prices fall by 30% or more.
(23 March 2010, 10:32AM) Complain about this comment
Noah, where are the Banks going to get the money to increase the amount of credit available for lending? As I said above, the SLS and CGS Schemes have been stopped - and even worse for the Banks they have got to pay back the £300bn within the next 2 to 4 years. On top of this Quantative Easing is being run down, not increased. We would bail them out again? No chance - the UK is already in as bad a state as Greece. The UK would become the worst basket case economy in Europe and make Greece look like the well off, rich relatives.The longer EA's talk up the market and keep asking prices at current, or higher levels the bigger the BUYERS STRIKE will become. In Worcester last year each of the 28 EA outlets sold 0.7 of a property per week on average - where next? 0.3 of a property per week. EA's will be going out of business in their droves over the next few yrs.
(23 March 2010, 11:53AM) Complain about this comment
I don't think it should be Estate Agents job to correct the housing asset bubble when government and BoE policy is pumping it higher. In the main, Estate Agents only value properties in line with other properties in an area so just maintain the trend in order to attract business. It will take an event such as higher lending rates, job losses or both to distress sellers and force asking prices down in order to sell to avoid repossession/spiralling costs.
(24 March 2010, 08:23AM) Complain about this comment
Estate Agents do not simply value properties in line with other properties in an area - the world and his wife know that EA's continually over-value properties by 10% or more in order to get properties on their books. EA's are well known for telling untruths to both their clients (vendors) and potential buyers - the Office of Fair Trading reported that EA's telling lies was a common practice by EA's in a report they published last year. EA's have been central to creating the house price boom, along with mortgage lenders, that caused the worst recession since the 1930s. EA's need to be much more heavily regulated and have the role of valuing and setting asking prices taken away from them
(24 March 2010, 08:28AM) Complain about this comment
If it will take an event to cause house prices to fall such as unemployment (that's already happening) or lets say wage deflation (already happening), erosion of incomes (already happening via wage deflation and rising taxes) .... perhaps a fall in real demand for property at current prices? - Real demand has not only fallen but collapsed by over 60% in most towns and cities. Then the biggest event of all - the Global Credit Crash (started in 2007 and is ongoing - with most economists saying it will take Banks a decade or longer to recover). The 'event(s)' are already happening. Then we have the withdrawl of the SLS & CGS Schemes (yikes, minus £300bn from the mortgage market).
Name This will be the name displayed with your comment.
Email This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.
Comment Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.
To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.
Enter the text from the box above
Remember my details
By leaving a comment you accept our terms and conditions.
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.Sign up FREE to Money Morning here.
07 Feb 12
06 Feb 12
31 Jan 12
Become a smarter investor in just 3 minutes a day.
MoneyWeek is not responsible for the content of external internet sites.