Rarely
a day goes by without the state of the UK property market making
headlines. Repossessions on the rise, house prices
tumbling, industry jobs being lost. It is sometimes difficult to
separate the reality from the hysterical press reaction but one thing is
certain: the house price boom is as good as over – for the time being.
Consumer
confidence in the UK property market is at
rock-bottom. Negative newspaper headlines, the Northern Rock debacle and significant
rises in consumers household expenses have resulted in
homeowners feeling less affluent and therefore much less likely to consider
moving home. Property
buyers are much less confident as they do not want to invest in their
biggest asset shortly before a perceived fall in its value.
Whilst
the above factors all contribute to the current uncertainty in the UK property market, the importance of
the so-called "credit crunch" cannot be overestimated. The
problems in the American sub-prime mortgage property
market are well documented, but what most observers didn't foresee was the
knock-on effect this would have to the availability of home loans in the UK. Lenders are simply running
short of funds to lend with previous avenues of funding for customer mortgages
closed to them. This has made mortgage lenders reluctant to lend to
anyone other than the best-risk borrowers (typically residential mortgages of
less than 75% of property value).
The
removal of 100% mortgages and a lot of 95% deals from the UK property market has made it
practically impossible for "first time buyers" to get onto the
property ladder and this has considerably reduced demand for property.
According to the Royal Institute for Chartered Surveyors (RICS) the
number of new property buyers showing an interest in buying a property has
fallen for the last 17 months running.
What
has also happened is that there has been an alarming tightening of "buy to let"
mortgage lending criteria – mainly as this is considered riskier property financing.
Many recent developments including the reduction in "loan to values"
available, the requirement for property rents to be higher to secure mortgages
and many lenders simply withdrawing from the property market entirely has made
it much harder for "buy to let" landlords to secure property
finance. This will also reduce the number of rental properties available
in the UK.
There
have been many calls for the Bank of England to reduce interest rates to try
and stimulate demand in the property market and make mortgages more affordable
to potential borrowers. Recent disappointing inflation figures however
have all but removed that likelihood, as the Bank of England's overriding
responsibility is to ensure inflation remains at an acceptable level.
Reducing interest rates to stem a property price "crash" will only
fuel inflationary pressures and so there is unlikely to be any comfort for
borrowers in the short term.
Predictions
for property price movements range wildly. Halifax and Nationwide (two of the largest
lenders) predicted property prices would remain stable in 2008. A recent
index of property price futures however predicted a fall of over 23.5% over the
next three years. Whilst it is true that property prices are gradually
falling (according to recent RICS and Halifax data), there have been tiny green
shoots of recovery in the UK mortgage market recently, and better priced and
more available mortgage borrowing should help to stem this downturn.
Nick Parkhouse
UK Property Correspondent
Best4property.co.uk
