House Price Decline Continues To Rise
House prices are falling even faster than before in England and Wales, according to the Land Registry.
Prices dropped another 2% in February, pushing the annual rate of decline from 15.1% to 16.5%.
It means the average property is now worth £153,862, down by £30,361 in the last year, and back to the level last seen in September 2004.
House price inflation has fallen for 18 months, due to the impact of the recession and the credit crunch.
The Land Registry’s figures confirm the downward trend indicated by other surveys, such as those from the Halifax and the Nationwide.
Hand-in-hand with the fall in prices has gone a slump in sales.
This week the HM Revenue & Customs (HMRC) published figures showing that property sales in the UK hit a new low this year.
There were just 42,000 completed transactions in February, only slightly higher than in January but still half the level seen a year ago.
Earlier this month figures from the Bank of England suggested that the number of mortgages being approved, but not yet lent, had bottomed out at an average of 31,000 for each of the past six months.
But despite surveyors and estate agents reporting a pick-up in enquiries from would-be buyers, there is little evidence so far that this is translating into higher sales.
“Lower prices and the cheap cost of money has begun to fuel an increase in buyer interest as reflected in the RICS “new buyer enquiries” series which has risen for four consecutive months,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).
It Getting Ever More Tougher to Find The Right Mortgage Deal
Mortgage lenders are continuing to demand bigger deposits as they ration home loans to their customers.
In the past month the percentage of new mortgage deals requiring at least a 25% deposit has risen, from 54% to 60%.
And 25% of all deals on offer in fact require a 40% deposit, according to the information service Moneyfacts.
The Bank of England announced last week that banks and building societies expect to rein in their lending even more in the coming months.
“The number of deals available for those with a deposit of 25% or more continues to increase as the lenders are looking to cherry pick the best customers, said Michelle Slade of Moneyfacts.
“Worries over falling house prices and the potential of customers getting into negative equity has caused the number of deals for customers with just a 10% deposit or less to fall to an all-time low.”
Larger Premiums
There are now just 21 mortgages available with a deposit of 5% or less, compared with the position at the beginning of last February when there were more than 1,200 on offer.
The credit crunch and subsequent shortage of mortgage funds has produced a similar collapse in the number of home loans where lenders ask for a 10% deposit, once the traditional down payment.
These have fallen from nearly 1,200 at the start of February 2008 to just 148 now.
At the other end of the scale, the number of deals that need a minimum 40% deposit has shot up from just 24 to 341.
Ray Boulger, of mortgage brokers John Charcol, said life had become much tougher for people who could only put down a small deposit.
“The spread between the interest rate you pay if you have a small or a big deposit has widened considerably,” he said.
“Someone with a small deposit has to pay a much bigger premium on their interest rate and they are also shut out from some of the most attractive deals, such as tracker deals,” he added.
Prices Fall
The UK property market shrivelled in an unprecedented fashion during 2008, as the dearth of mortgage funds shut off the flow of buyers and pushed down sales and prices.
Sales volumes are currently about 60% lower than a year ago while prices, according to a Halifax survey, fell by 16% in the course of last year.
And the number of new mortgages approved for house buying in November was 67% lower than a year ago, according to the Bank of England’s latest figures.
As such they suggest that sales will fall further in the coming months.
And all experts and commentators are united in their view that prices will also keep on falling for the time being, possibly lasting into 2010.
So far there is no evidence that any recent government attempts to inject fresh funds into the banking system have yet fed through to mortgage lending.
The chancellor Alistair Darling is considering a proposal put forward by Sir James Crosby, the former boss of HBOS, that the government should agree to guarantee £100bn of fresh mortgage lending by the banking industry.
But no decision on that plan is expected until the next budget.
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.”
Upto 1.7 Million Brits Could Be Facing Negative Equity
About 1.7 million britans could be pushed into negative equity in the next year should house prices keep falling at their current rate, a report claims.
The credit ratings agency Standard & Poor’s (S&P) says house prices could still fall by a further 17% in the coming year.
That means 14% of all mortgage holders in the UK would find their homes were worth less than their mortgages.
House prices have been falling amid a credit crunch that has seen lenders cut the number of mortgages they offer.
“The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term,” said S&P.
Downward trend?
Analysts at the ratings agency specialise in assessing the credit worthiness of organisations trying to raise money by issuing bonds.
They looked at a sample of two million outstanding mortgages and estimated that the average borrower has a loan worth 54% of their property’s value.
But about 70,000 households, or 0.6% of all UK borrowers, are already in negative equity.
S&P expect that number to rise sharply if prices keep on falling.
The sort of borrowers who are most at risk, the ratings agency believe, are those who have borrowed to become landlords in the buy-to-let market, or who were sub-prime borrowers, before lenders stopped lending to them altogether.
Sub-prime borrowers are people who have poor or non-existent credit histories.
In June, the investment bank Morgan Stanley said that two million households were at risk of owing more than the value of their homes if house prices fell 20% by 2010.
Hard times ahead for first-time buyers
A first-time buyer couple on a low-income must save a years take-home pay to buy their first home, say surveyors.
A couple in the bottom quarter of earners in the United Kingdom needs £27,738 to pay in advance fees, according to the Royal Institution of Chartered Surveyors.
Affordability has improved for those who are able to get on the housing ladder, the group said.
But the credit crunch has made it more difficult to climb the first rung.
“Access to the housing market has deteriorated as the credit crunch seized mortgage lender sector,” said RIC’s senior economist David Stubbs.
“With the decline in mortgage approvals, the situation does not look like improving in the latter part of 2008 and first time buyers will find their path to homeownership increasingly blocked.”
Mortgage Costs
Mr. Stubbs said that those who are able to find a larger deposit to benefit from a reduction in mortgage repayments as a result.
But he added that rising fuel and food bills means that household finances would remain strained.
The Council of Mortgage Lenders said that in May the average first time buyers mortgages stood at £113,500.
Rics believes that a low-income couple jointly earning £27,316 per annum after taxes, would need all of this for expenses such as a deposit and fees on a first home.
This was much higher than the 21% of their income they would have needed to get on the property ladder in 1996.
London is the most difficult area to enter the real estate market to low-income couples, followed by the south-east, east and south-west of England.
Scotland and the north-east and north-west England are most accessible.
Affordability
Larger deposits and the decline in prices means those low-income couples who have one foot was found that affordability has improved in April to July this year.
They should spend 34.5% of their take-home pay on mortgage repayments, down from 37.2% during the first three months of the year and lower than the record level of 46.5% at the end of 1989.
The figures come as Woolwich – the mortgage arm of Barclays – cut part of its fixed-rate mortgage deals by up to 0.3%.
Broker John Charcol also unveiled a two-year follow-up to deal with high-value mortgage loans with a record fee provision of up to £137,500.
Borrowers are offered an interest rate of 0.01% below the Bank of England base rate, available on mortgages between £ 500000 and £ 5m, but they must pay a fee arrangement 2.75% of the amount borrowed.
Mortgage approvals reach a record low
The Bank of England yesterday released figures confirming the slowdown in the UK mortgage market continues. It said the number of new mortgages approved for house purchases in March fell to a record low of 64,000, down from 72,000 the previous month.
This was the lowest level since current records began in January 1999, and was down 44% on the figure for the same month in 2007. However, credit card and other lending increased in March from February.
The weakening market due to the global credit crunch has caused lenders to put up prices on mortgages and withdraw mortgage deals, especially for those unable to put down a significant deposit, in recent months due to them being more cautious.
Mortgage brokers are warning significant number of lenders have just pulled out of the market completely including some of the big lender groups that have actually got access to funds,
Off the mortgages that are being two-thirds now to the top five lenders compared with 56% this time last year which will likely lead to higher cost to customers due to lack of competition.
House prices
In the UK, property prices have also started to dip during 2008, according to various housing surveys some warning they could drop by as much as 30%.
“The news that mortgage approvals dropped to a record low of 64,000 is hardly surprising given that lenders have been aggressively scaling back on the provision of finance to home buyers,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).
The Bank of England also reported a drop in loans approved for re-mortgaging, down 11,000 in March from the previous month at 98,000, and for other purposes such as buy-to-let, down 6,000 at 57,000.
Net lending secured on homes was £6.9bn and led to another monthly fall in the annual growth rate, down from 9.4% in February to 9.1% in March.
Lenders much more cautious
The figures come a week after the British Bankers’ Association (BBA) said mortgage approvals for house purchases in March were down 46% on the same period in 2007, the lowest monthly figure since September 1997.
In an attempt to ease banking concerns and help them operate during a global credit squeeze, the Bank of England announced a plan that would let lenders swap potentially risky mortgage debts for secure government bonds.
Lenders how ever have continued to withdraw mortgage offers for new customers, with Nationwide the latest to do so as it announced that, from 1 May, all but two mortgages would require a 10% deposit.
The Bank of England’s Special Liquidity Scheme, if it works, might stop things getting much worse. But many lenders will remain cautious until the situation improves
However the Royal Bank of Scotland (RBS), including NatWest, has moved to buck the trend. From Wednesday, it will cut all its fixed and tracker rate mortgages by between 0.1% and 0.3% for new customers buying directly from the bank’s branches, and for existing customers switching deals.
The bigger rate cuts are for those who offer a bigger deposit, but RBS is also launching a cash back deal for first-time buyers as it tries to increase its share in the mortgage market.
With mortgage deals being so tight if your planing on getting a mortgage or re-mortgage it’s more important than ever to ensure your credit file is completely accurate as the tiniest error could lead in an application being turned or an increased APR costing thousands or even tens of thousands over the term of the loan.
