Market misery or the perfect property time?

Wednesday 3rd December 2008

By Rachel Jones
Know Your Money Editor

The Bank of England has recently released a report on mortgage approvals for October and the outlook appears to be bad news for people looking to get on to the property ladder and buy their own home. Indeed, the report shows that just 32,000 mortgages were approved in October, 1,000 less than the previous month. As such, the figure is lower than the previous six-month average, which stood at 38,000. Furthermore, figures stood at 33,000 in July and 32,000 in August, reflecting how the market appears to be fluctuating. Indeed, Howard Archer, chief UK economist at IHS Global Insight, comments: "An extremely weak set of Bank of England mortgage approvals and lending data suggest that house prices still have a long way to fall."

However, if this trend continues, what will this mean for the average Briton?

Crash and burn?

With the Bank of England figures looming overhead as the holiday season approaches, what does this mean for property prices in the UK? Figures released by the Land Registry at the end of November show that the average price of a home in October was £165,529, which the report notes represents a continuing decline with a movement of -10.1 per cent. This marks the 14th consecutive month for England and Wales where the annual price change has decreased. Furthermore, property values are now at a similar level as to what they were during the summer of 2006.

As such, the Land Registry states: "Every region in England and Wales experienced a decrease in their average property values over the last 12 months. The region with the most significant annual price fall was Wales with a movement of -12 per cent. The West Midlands experienced the smallest monthly fall with a movement of -0.6 per cent."

Furthermore, sales volumes also decreased, with the number of properties sold in the £150,001 to £200,000 price range dropping from 27,592 in August 2007 to 9,565 a year later. Indeed, every price range saw a decrease of over 50 per cent, highlighting how all sections of the market are affected. But when will it stop?

Will there be a ray of light?

Michael Coogan, director general of the Council of Mortgage Lenders, spoke at the organisation's annual conference yesterday (December 2nd) and said that mortgage approvals will dip to an even lower figure in 2009. The BBC reports that he warned that unless the government took action to prevent this, the financial outlook appeared gloomy. Indeed, commenting on this Thursday's interest rate meeting of the Bank of England's monetary policy committee, the BBC notes Mr Coogan as saying that pressure from the government on lenders to pass on the previous rate cut not only pushed down the interest rates of the savings accounts of Britons, but also affected standard variable rate customers.

"Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again," the resource notes him as warning.

As such, it would appear that banks and building societies need to start lending again in order to provide much-needed mortgages for first-time buyers. Meanwhile, Legal & General says that its research shows that while 27 per cent of financial advisers in its mortgage network believe that business will get better over the next quarter, they expect the proportion of house purchase mortgage business to shrink. Indeed, 71 per cent of those questioned feel that house purchasing will represent between zero and 20 per cent of their mortgage sales over the next three months.

So, if the mortgage and property markets look set to decline in 2009, how is the government going to help consumers?

A helping hand?

It is not just homeowners who are feeling the strain. Housing industry representatives recently met with the prime minister Gordon Brown to ask him why he has seemingly taken no action to push banks to kick-start lending. Stephen Stone, chief executive of Crest Nicholson, told Building that he asked Mr Brown and the housing minister Margaret Beckett to take advantage of the ownership position the government is in.

"If the government part-owns the banks then they can just tell them what they want them to do. We said this is not something you can do in six months - it is something that needs to happen now."

But whether this is action that Mr Brown will rapidly act upon remains to be seen. ADNFCR-8000200-ID-18911044-ADNFCR ©