Low sales continue to drive house prices down
UK house prices continued falling in October and are now nearly 15% lower than a year ago, says the Nationwide.
The building society’s latest survey says property prices fell by another 1.4% this past month, pushing the annual rate of fall up from 12.4% to 14.6%.
This means the price of an average house was £158,872 – nearly £30,000 less than last year.
The Nationwide is the first major lender to report the state of the market in October.
The lender said the price falls were being driven by the fall in sales, now at their lowest for 34 years.
“The number of completed house purchase transactions as a proportion of the total stock of mortgages is now at its lowest ever level since the series started in 1974,” said the Nationwide’s chief economist, Fionnuala Earley.
“A looming recession and continued financial market instability have uncomfortable implications for the housing and mortgage markets, and will undoubtedly affect the pace of recovery in house prices.
“However, the speed of the economic slowdown and the determination on the part of central banks to return stability to the financial markets does mean that interest rates are likely to continue to be cut sharply,” she added.
The survey shows that house prices have now dropped for 12 consecutive months, although in a slight upturn the monthly fall in October was slightly smaller than the previous three months.
According to Hometrack, it now takes significantly longer to sell a home than it did a year ago.
The average amount of time from the time of going on the market to going under offer rose from 7.4 weeks in October last year to 11.9 weeks now.
Asking prices have been falling but slower than other measures, the Nationwide said, with evidence that most sellers do not yet feel the need to reduce their prices dramatically for a quick sale.
Ms Earley told the BBC that urgency had been taken out of the market because buyers were expecting prices to fall further in the coming months.
The figures reveal that prices are on course to end the year at least 16% lower than at the start of 2008.
This reveals the speed of the downturn, as major lenders at the start of the year were predicting that UK house prices would remain flat in 2008.
Other figures suggest there will be no let-up, in the short term, in the dramatic slump in the property market.
Figures from the Bank of England on Wednesday showed that mortgages approved but not yet lent – a key indicator of short-term trends – were still down by two-thirds on the levels seen a year ago.
Meanwhile, the year-long crisis in the banking system has shown no signs of relief, despite the best efforts of central banks and governments around the globe.
As a result, banks in the UK are still severely restricting their new mortgage lending, a trend which is likely to continue in the next few months, according to the Bank’s recent Financial Stability Report.
Ms Earley said it would be clearer by the end of the year whether the help given to the banks would feed through to mortgage holders.
No Breakthrough In Icelandic Bank Talks
Talks aimed at recovering £4bn in deposits held by UK customers in the failed Icelandic bank Icesave have broken up without a result.
Treasury officials and their Icelandic counterparts are seeking to salvage the funds placed in Icesave, at risk after its parent firm Landsbanki folded.
The bank’s collapse fuelled a diplomatic row after the UK government froze assets of other Icelandic banks.
An Icelandic official said the talks would resume but did not say when.
‘Not over’
“This round of discussions has ended but talks are not over and will continue in the very near future,” a government spokesman said.
The fate of 300,000 UK Icesave customers, caught up in the collapse of Iceland’s banking sector, sparked a heated row between the UK and Icelandic authorities earlier this month.
The UK has guaranteed the deposits of all UK private depositors in Icelandic banks.
But part of the compensation for Icesave’s UK customers should come from Iceland because the bank is not registered in the UK.
Gordon Brown accused his Icelandic counterpart of “unacceptable” and “illegal” behaviour after Iceland said it could not give a guarantee to reimburse UK customers of the online bank.
In response, Icelandic PM Geir Haarde accused the UK government of “bullying” and bringing down one of its other banks after the Treasury froze the assets of Icelandic institutions in the UK.
The two countries have since pledged to work together to resolve the impasse and the UK has lent Iceland £100m to help it meet some of the cost of Icesave deposits.
At a meeting earlier this month in Reykjavik, officials from both sides said progress had been made
Record Numbers Seeking Debt Advice
The number of people seeking advice from the Citizens Advice Bureau about how to manage their debts has risen by 33% in the past year.
The charity said, since October 2007, it had been contacted by more than 77,000 new callers in England and Wales with mortgage and loan arrears.
The number had increased sharply in the past few months due to the worsening credit crunch.
The charity said vulnerable households were those most affected.
‘Basic essentials’
The Citizens Advice Bureau (CAB) reported that people mainly fell into arrears after losing their job, becoming ill or separating from a partner.
More than half of those calling the charity’s volunteers about mortgage and debt problems were aged between 35 and 49, while one in five were single parents.
Mr Harker said: “While we are pleased to see the number of consumer credit problems going down, the increase in the number of inquiries about basic essentials is worrying.
“These figures show how the current economic situation is hitting vulnerable and low-income households the hardest.”
‘Fair treatment’
Mr Harker said mortgage lenders and fuel companies should do everything in their power to ensure the situation did not get any worse for those already in debt.
He recommended workable solutions when it came to repayment arrangements rather than extra charges.
However lenders, on average, started repossession action when people were four months into their arrears.
Mr Harker said: “All creditors should treat borrowers in arrears fairly and sympathetically, negotiate with borrowers in trouble and only use court action for mortgage arrears as a last resort.”
The CML Report The Mortgage Lending Slump Continues
The slump in mortgage lending continued during September, according to the latest figures from the Council of Mortgage Lenders (CML).
Total lending was £17.7bn in September, down 10% from August and 42% lower than the same period last year.
This was the lowest level of lending for any month since January 2005 and the lowest September figure since 2001.
The CML said it now expected that new lending this year would be only 37% of the level recorded during 2007.
“Weakening consumer demand and ongoing funding constraints will dampen monthly lending figures for the rest of this year and into the first quarter of 2009,” said the CML’s director general, Michael Coogan.
“We estimate gross lending in 2008 will be around £255bn (£363bn in 2007) and net lending of around £40bn (£108bn in 2007).”
Downward trend
The figures from the CML chime with other evidence that has indicated the UK’s housing market is going through its sharpest downturn for many years.
Property sales fell by 56% in the year to August, according to the HM Revenue & Customs
Prices in the 12 months to September dropped by 12% according to both the Halifax and the Nationwide
Surveyors reported that, on average, they sold fewer than one property per week each in September
The number of new mortgages approved but not yet lent was 70% lower in August than a year ago.
Andrew Montlake of mortgage broker Cobalt Capital said the CML’s figures were depressingly familiar.
“They reflect the seismic shift we have seen in the mortgage market,” he said.
“Despite the bail-outs that have taken place around the world I expect very little change in the mortgage lending figures for the rest of this year, mainly because the mainstream lenders are only accepting ‘quality’, low loan-to-value business,” he added.
Another rate cut?
Despite the Bank of England’s recent emergency cut in interest rates, taking its bank rate down from 5% to 4.5%, there is no sign at all of mortgage lending becoming easier or of the downturn in the market easing off.
The traditional 95%-mortgage has all but disappeared, with most borrowers required to put down a minimum deposit of at least 10%, and often more.
And earlier this month, the Bank of England’s own official survey of lending intentions by banks and building societies found that lenders intended to restrict lending even further through the rest of the year.
“Funding constraints remain the key issue for lenders at the present time despite the governments attempt to revive mortgage lending as part of the recently announced recapitalisation programme,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).
“However if nothing else, the worsening economic climate is set to provoke the Bank of England into further interest rate cuts over the coming months.
“A further half point move is quite possible at the November meeting,” he said.
Economist’s Predict Interest Rates Could Be Cut Bellow 2 Percent
Economist’s predict the UK’s official interest base rate could fall below 2% as the government struggles to avoid a recession.
If it happens it would be the lowest its has been since the Bank of England was founded in 1694.
Roger Bootle Economist predicts a fall to 3.5% by Christmas and 2.5% or 2% by spring and lower if “things get really bad”.
He also says that inflation will “plummet” next year and could even fall to zero or below.
Dramatic prediction
Roger Bootle speaking to Money Box on BBC Radio 4 said
“We are going to see some dramatic falls in interest rates.
“The low point in recent years was 3.5% and we weren’t in anything like the pickle we are now.
“But it has to get an awful lot lower – 2% is the all time low for Bank rate and I suspect we’ll get to something like that, but if things get really bad why can’t they get lower?”
He predicts a cuts at both the November and December meetings of the Bank of England’s Monetary Policy Committee.
“I would certainly see half a point off by Christmas and maybe 1% off.
“And if the news continues to be grim we’ll see further falls in the early months of next year.
“If the medicine is not that effective you have to use a bigger dose – so it wouldn’t surprise me if we see 2.5% or 2% by the spring.”
fears for Income
Such rates could slash the incomes of many retired people who live partly on the interest generated on their savings.
One Money Box listener wrote to the programme:
“If investment rates fall as is now predicted, I am one of possibly hundreds of thousands of pensioners, who will find their returns from building societies reduced by as much as three quarters.
“We rely on the current level of interest to make ends meet, and large numbers will be faced with being unable to meet living costs, particularly fuel and council tax.”
Roger Bootle understands the fears of price rises, but says falling interest rates will not boost inflation.
“Inflation has been very high, but it is set to plummet.
“Oil is less than half what it was at the peak, wheat prices are a third what they were.
“The commodity price shock is going into reverse.
“And we surely all believe recession is hitting the UK economy – that will also tend to reduce prices, so those together will bring inflation tumbling down.
“It is possible that the downturn will be even more serious and it wouldn’t take much to push it below the zero line.”
If that happened it would be the first time the UK had experienced deflation since the end of the Great Depression in 1933.
Anger At Northern Rock Repossession Rate
Opposition MPs and housing charities and have urged ministers to investigate after it emerged that Northern Rock is repossessing 50% more properties than the industry average.
Shelter said ministers had a “moral duty” to help people stay in their homes while the Lib Dem’s said the figures were “difficult to swallow”.
Gordon Brown pledged more help but said ministers did not run the Northern Rock.
By the end of September, the state-owned lender had 4,201 seized homes, up from 2,215 at the end of last year.
Northern Rock rejected suggestions that its approach to repossessions was “overly aggressive”, saying the measure was only ever used as a “last resort”.
‘Perverse’
But charities have expressed anger that after being bailed out by the government last year, Northern Rock’s repossession rate in the first half of 2008 was double that of the industry as a whole.
Shelter said repossessions should only occur if “absolute necessary” and that people should be given every assistance, including free independent advice, to help them stay in their homes.
“It seems a bit perverse that ministers who a few months ago were lecturing lenders about their responsibility towards homeowners in arrears are now allowing companies that are state owned to repossess people’s homes so aggressively,” said its chief executive Adam Sampson.
“We realise the government cannot avoid all repossessions but it must ensure a dignified and planned exit from mortgages that are held by the newly nationalised banks and hopefully try to allow people to stay in their homes wherever possible.”
In July, Northern Rock said the number of borrowers three months or more in arrears on their mortgage payments had doubled in the first half of the year as economic conditions worsened.
Experts said Northern Rock’s repossession rate was likely to be higher than average as it offered more 100% and higher loans than most lenders and since many of its less vulnerable customers remortgaged elsewhere after the firm was nationalised.
Government support
The government announced a £300m package of measures in September to help people stave off the threat of repossessions.
Help is being offered for people on benefits to pay interest on their mortgages while people will be able to sell all or a share in their property to a housing association or other social landlord, enabling them to remain in their property.
Mr Brown acknowledged that more homeowners were finding it hard to meet their payments and said the government was looking at further ways to help borrowers through the benefits system.
But he deflected criticism of Northern Rock itself, saying it was “important to note that it is at arm’s length from government”.
“It is not a company we are running on an everyday basis,” he added.
The Lib Dem’s said lenders should be under a legal obligation not to issue repossession orders until they had explored every means of helping people, including renegotiating their loans.
“People get their household finances in a mess and they can be straightened out through quite simple measures like deferring a payment here or cutting some costs there,” said leader Nick Clegg.
“That is probably the best way to make sure we do not simply move to this default position of mass repossessions up and down the country.”
Discussion’s Started On a Paln To Protect More Guernsey Savers Cash
Emergency talks are taking place among deputies to plan the next step in their calls for a cash deposit protection scheme on the isle of Guernsey.
Twelve States members released a joint statement last week expressing concern about the lack of a savers’ guarantee.
The States has said protecting savers’ deposits was a top priority, but it would not be rushed into a scheme that was inappropriate.
Treasury and Resources has ruled out any such scheme before November.
The group said it believed it would not be brought before the House until spring 2009, which in its view was “too long”.
‘Independent action’
In its statement, the group said Guernsey’s residents had waited long enough and it was “not content” the necessary measures were being pursued as promptly as islanders had a right to expect.
“Should we not receive reassurances that a suitable depositors’ protection scheme will be presented very shortly for consideration, we shall not hesitate in acting independently,” the statement added.
Treasury and Resources Minister Charles Parkinson has denied there has been any failure in the way the issue has been handled.
“I’m not averse to an inquiry if one is set up to review what’s happened in Guernsey,” he told BBC News.
“I’ve every confidence it will conclude all of the authorities did everything they properly could.”
Guernsey savers have been told they will receive 30p for every pound deposited with Landsbanki Guernsey, which has gone into administration.
Home Loan Figures At A Record Low
The number and value of home loans are at their lowest levels since current records began, according to the Council of Mortgage Lenders (CML).
The number of loans granted for house purchases in August dropped to 42,000 – some 59% lower than the same month a year ago.
The value of these loans was £6bn, which was fall from 63% August 2007.
Government measures to help the mortgage market will take time to feed through, the lenders’ group says.
Both the number and value of house purchase loans in August were at their lowest since monthly records began in January 2002.
The more historic quarterly data shows that the number of loans were at their lowest level in the last three months since the third quarter of 1974.
First-time buyers
The number of first-time buyers stepping onto the property ladder has also dropped severely, the CML said.
They faced having to borrow less because of falling house prices, but needed to put down more as a deposit in advance owing to increasingly tight lending criteria by mortgage providers.
The typical deposit put down by first-time buyers in August stood at 16% of the value of a property – the highest proportion since 1980.
The average first-time buyer borrowed 3.18 times their income, down from 3.39 in August last year. They typically borrowed £106,754.
Those moving home were also being squeezed on borrowing in August. The CML said there were 26,600 loans to home movers, valued at £4.1bn.
This was 61% down in volume and 64% down in value compared with the same month a year ago.
‘Positive effect’
There was a slight shift in the proportion of borrowers choosing tracker rates, which rose slightly, while the level of those opting for fixed rate deals in August fell slightly compared with the previous month.
“Fixed rates were higher than tracker rates and rose by more from July to August. Expectations of base rate reductions have also increased, so it is unsurprising to see consumers moving in favour of variable rates,” said CML director general Michael Coogan.
On Monday, the government announced it was injecting £37bn investment into Royal Bank of Scotland (RBS), Lloyd’s TSB and HBOS.
In return it suggested that the three banks return mortgage and small-business lending to 2007 levels.
“The package of measures announced yesterday will have a positive effect, but it will take time for it to feed through to the mortgage market,” said Mr Coogan.
House prices
The value of the average home in the UK was 3.4% lower in August than a year ago, the government’s own figures revealed on Tuesday.
This was down from a 0.3% drop in annual house prices recorded by the Department for Communities and Local Government (DCLG) in July.
The latest figures put the cost of the average UK home at £211,410.
The annual fall for the price first time buyers paid was 4.5% down in August, the figures show.
Prices fell year-on-year in England by 3.4%, were down 4.3% in Wales and dropped 18.6% in Northern Ireland. But in Scotland house prices were 1.3% higher than a year ago, the DCLG said.
Falling prices were led by flats, which dropped in price by 5.1% between July and August, followed by terraced houses (down 3%), bungalows (down 2.2%), semi-detached houses (down 1.8%) and detached houses (down 1.6%).
Home Sellers Have to Offer Large Discounts
Home sellers are being forced to accept offers on average 9% below their asking price, said the Royal Institution of Chartered Surveyors (Rics).
The difference between asking and selling price is widening as the property market downturn gets worse, Rics added.
Property prices have fallen by 11% in the past year, according to major lenders, while sales have fallen by more than half.
All the available evidence suggests that prices and sales will fall further.
“With housing transactions currently at a 30-year low, many vendors are being forced to lower their asking prices to achieve a sale in an ever shrinking market or they are being forced to rent their property until the market picks up,” said Simon Rubinsohn, RICS chief economist.
“The gap between asking prices and selling prices could widen in the coming months as the downturn in the economy becomes more visible, he added.
Big gaps
The smallest gap between asking and selling price was in Scotland where house prices are still rising.
But in the North of England, the discount between asking and selling price was at its bigest, at 12.5%.
Those vendors in Wales, the West Midlands and East Midlands, and the North West were accepting offers, on average, 10% below their asking price.
And the gap was smaller in London, at just 8.5%.
Rics said this was because London’s economy was more diverse, with a large jobs market, giving sellers “more room for optimism” about the price they could hope to achieve when selling a house or flat.
However Mr Rubinsohn warned this could change.
“The London market could be adversely affected as employment in the financial sector drops off,” he said.
