The Halifax released their latest House Price Index today which shows that prices in the 12 months to December fell 3.4% and in the three months to December they were 1.6% lower than in the same period a year ago. On a quarterly basis prices fell 0.9% which is significantly lower than the rate of decline at the end of 2008 which would indicate a decrease in volatility.

The Halifax also say that typical mortgage payments for new borrowers have fallen to 29% of average disposable earnings from a peak of 48% in 2007 although with interest rates expected to rise in the not so distant future this figure could head north again.

Martin Ellis of the Halifax commented:

“Looking forward, we expect limited movement in house prices during 2011 but with the risks on the downside. Interest rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell. Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings growth and higher taxes could put some downward pressure on demand.”

A poll conducted in the past week by Reuters suggests that the housing market will see more falls in prices as rising unemployment, together with steep government cuts and tough new mortgage rules dent buyer demand.
Two thirds of the analysts surveyed predicted that house prices would double dip with the median fall expected being 5%.

John Hawksworth of PwC said:
“There are likely to be further falls in house prices over the next year given the dampening effect of the fiscal squeeze, restricted mortgage availability and fragile household confidence levels.”

Commenting on the threat posed by new mortgage rules John Charcol’s Ray Boulger said:
“In the short term the biggest risk to house prices is the FSA’s Mortgage Market Review.”

Also out this week were figures from the Department of Communities and Local Government. According to them house prices in the UK were up 6.1% year-on-year in September compared to an 8.1% annual increase in August. This brings the average UK house price to 211,815. Month-on-month, however, house prices fell a seasonally adjusted 0.8 compared with an increase of 0.7% the previous month.

Looking at prices on a quarterly basis, the third quarter prices were 0.7% lower than prices in the second quarter seasonally adjusted. This follows a quarterly increase of 1.7% in the second quarter compared with the first.

Wales had the biggest annual increase with prices 8.8% higher than a year ago. Average annual prices were up 6.5% in England but only 1.4% in Scotland and in Northern Ireland prices fell by 7.6%.

This week was dominated by the arrival of the spending review, sorry comprehensive spending review, and comprehensive it was. Big job losses to come in the public sector has been the major headline everywhere but the measures announced did include things that will hopefully encourage growth in the private sector such as helping small businesses to increase apprenticeships, reduce the burden of regulation and help Britain to become a ‘European hub’ for high-tech and creative industries, with a super-fast broadband network helping to generate 600,000 new jobs.  The aim here obviously to create more new jobs than those that will be lost in the public sector.

Effect of the Comprehensive Spending Review on the Property Market

But what effect will all this have on the property market? Well property website Zoomla.co.uk has done some research. Not surprisingly, they say that areas which have more people working in the state sector will face rising unemployment which will in turn lead to more homeowners going into arrears on  their mortgages as well as cooling demand from buyers. This will put downward pressure on property prices in these areas. Conversely, house prices in areas with a smaller share of public sector workers are likely to be far more resilient.

There has been a lot of talk in the media about how the North will suffer but Zoomla’s research has thrown up some surprising results. According to them the top five areas that are most likely to be affected are Oxford, Denbighshire, Cambridge, Middlesbrough and Hastings. The areas least likely to be affected are the City of London, Crawley, Corby North Warwickshire and Broxbourne.

Rightmove House Price Index

The October figures for the Rightmove House Price Index were also released this week. They showed an “illogical” increase in asking prices of 3.1%. Stock levels are at near-record highs and mortgage availability is declining yet sellers have chosen to raise their asking prices by £7000.  Although prices are generally hiked in October as sellers look to take advantage of people wishing to move by Christmas, this year’s hike is the largest since October 2003.

However, greedy buyers need to beware. Rightmove’s Miles Shipside comments:

“The entry of a property to the market always has the potential to create a buzz among watching buyers as they are on the look-out for anything new that suits their needs better than what is currently on the market. When a property is launched to market the seller’s objective is to create a sense of urgency to view amongst buyers and a feeling of fear that by not viewing they will miss out on their dream home. This strategy is enhanced if it is keenly priced as buyers will act fast to get a possible bargain. If a newly marketed property fails to initially impress and find a buyer then it can quickly go stale and get written off even though its price may subsequently be substantially reduced. A high launch price can damage your chances of securing a sale and in recession-hit markets you often end up chasing prices down and achieving less in the end.”

He then goes on to add:

“Buyers and sellers are staring each other out, and it’s a question of who will blink first. Even if they wanted to, buyers cannot blink unless lenders release more funds for mortgages. As that’s not going to happen, there are likely to be some blinking sellers this winter!”

Council of Mortgage Lenders

Also out this week was news from the Council of Mortgage Lenders (CML) that gross mortagage lending in September reached a ten-year low. It was down 1% from £12.1 billion in August and down 7% from £12.9 billion in September 2009. Michael Coogen, Director General of the CML, said:

“Lending volumes do not seem likely to increase substantially towards the end of the year. Funding pressures on lenders remain, and the practical implications of government and public spending cuts are beginning to emerge, with a resulting impact on consumer confidence.”

Rates on tracker mortgages reached a new record low in September as competition amongst lenders continued to increase. A number of high-profile lenders have cut their rates in recently and the average  tracker rate fell to 3.55% during the month, the lowest level since Bank of England records began in 1997.

Rates for five-year fixed rate mortgages also fell bringing the number of consecutive months that rates on these products have either improved or stayed the same to ten.  Rates for customers with a 25% deposit who took out a five-year fix on average paid 5.06%. Levels like these were last seen 16 months ago. However, the cost of a two-year fixed rate mortgage went up slightly during the month,  3.74% in August to 3.79% in September and the margins that lenders are charging are still high by historic standards.

July continued to see low demand for mortgages according the Council of Mortgage Lenders in their latest survey. Although the number of loans increased slightly to 56,000 from 52,000 in June this is still very weak in volume terms for what is usually a strong month.

The number of remortgage loans remained unchanged but loans to first time buyers fell slightly although the value of total loans was the same. The share of the market overall for first time buyers went down from 38% in June to 34% in July as lending criteria tightened once again.

Having eased during the early part of the year, loan criteria have now tightened a little. First-time buyers put down average deposits of 24% in the month, unchanged from June but up from a recent trough of 21% in April and May. But low interest rates mean that interest payments continue to take up a relatively modest share of income. At 13.2% this was down slightly from the previous month and the lowest it has been since early 2004.

90% of first-time buyers chose to take out repayment mortgages – up from 67% before the credit crunch. 72% of home movers and 70% of those remortgaging also chose repayment mortgages.

A CML economist commented:

“The increase in the prevalence of repayment mortgages is likely in part to reflect the anticipation of regulatory changes by the Financial Services Authority to limit the availability of interest-only mortgages.

“More generally, lending criteria remain tight, underpinned by caution on the part of both borrowers and lenders in the light of continuing economic uncertainty.”

The Royal Institution of Chartered Surveyors (RICS) has said that property prices are falling according to their July housing market survey. House price falls rather than rises were reported by 8 percent more chartered surveyors. By contrast, the June survey showed eight per cent more surveyors reporting rises rather than falls. This is the first downturn that the survey has thrown up in the last 12 months, and the lowest reading in over a year, as the number of new properties coming to the market continues to outpace buyer demand with the net balance of new buyer enquiries falling for the second month in a row.

Concerns about the health of the economy, looming cuts and increased difficulty in obtaining mortgage finance have dampened demand whilst 33% of surveyors reported an increase in the number of properties on their books. This is up from 28% last month and is the highest reading since just before the introduction of HIPS in May 2007. The average number of properties on surveyors’ books went up 4.1% this month but the average number of sales was flat.

On a regional basis, London and the North West were the only places where material property price rises were reported. Generally though, expectations for future house price increases have turned negative with 28 percent more surveyors expecting falls, albeit that eight percent expect sales to increase rather than fall.

Ian Perry, a spokesman from RICS said:

“The fall in the RICS house price measure is broadly consistent with most other recent data that has been released. This is a reflection of both the increase in supply following the scrapping of HIPS and the more cautious stance from buyers.
Significantly, the forward looking price expectations numbers suggest that this softer trend will continue through the second half of the year. However, agents are still generally optimistic about sales activity which should benefit from more realistic pricing of properties.”

Also in the news today was research entitled “the dead cat stops bouncing this year” published by upmarket estate agents Savills. They say that the price rises that occurred in the first half of this year will prove to be a “sucker’s rally” and that the market is unlikely to recover until 2012.

Savills head of residential research, Yolande Barnes, said “The mainstream housing market is at a tipping point and faces the prospect of a short-term price fall followed by a period of low or zero growth”. They reckon that £20,000 will be wiped off the price of an average London property by the end of this year bringing the price down to £270,000.

NEW figures from the British Bankers’ Association (BBA) show net mortgage lending increased by £2.1 bn in June down from £2.5bn in May and £2.9bn in June 2009. This brings the total annual growth in net mortgage lending in the year to June to 4.1% compared with an annual growth of 1.1% in the year to May.

High street banks continued to see strong repayments and there has been little impact on on the number of house purchase approvals despite the increase in the number of properties coming to the market since the abolition of HIPS.

The number of mortgage approvals for both house purchases and remortgages fell slightly in June while the average value for purchases remaining at around the same level as last month (£150,600). This is 9% higher than a year ago.

David Dooks, the statistics director of the BBA said:

“The banks’ mortgage lending position was little changed in June. The abolition of HIPs and a reported increase in the number of house sellers is expected to encourage activity in the market, though this may be tempered by households’ uncertainty over job prospects and the impacts of fiscal tightening.”

“Overall lending to business continued to reflect subdued demand, and contraction in lending to most non-financial sectors slowed.”

RIGHTMOVE, the UK’S leading property website, has released the July edition of its monthly House Price Index and it shows that new sellers have reduced their asking prices, for the first time in 2010, by 0.6% (£1,435).

Strong Buyers’ Market Emerging
The number of new properties coming to the market has increased by 45% compared to this time last year and as there are now five new sellers for every two mortgage approvals. This means that a strong buyers’ market looks set to develop over the rest of the year and any price gains made in the first half of the year are likely to be eradicated in the second half.

Commercial director of Rightmove, Miles Shipside said:

“The number of new mortgages being approved each month is less than half the number of new sellers, with the imbalance being exacerbated by the increase of nearly 50% in the number of properties coming to market compared to a year ago. More aggressive pricing is now the order of the day, which means that conditions are ripe for a strong buyers’ market in the second half of 2010”.

Sellers will have to be more realistic with their asking prices and what they hope they can achieve as the level of supply is outstripping demand causing agents’ stock levels rise. The number of unsold properties on estate agents’ books jumped by 25% in the first half of the year, after five consecutive monthly rises, to the highest level since August 2008.

Mr Shipside added:

“With agents beginning to choke on a surfeit of new stock, sellers are going to have to
price at bargain levels… the tradition of testing the water at a higher figure before reducing at a later date will backfire in areas of excess supply, as over-ambitious sellers will have to cut back even more as they chase prices downwards”.

Rightmove’s quarterly Consumer Confidence Survey is due out in August and early indications of sentiment show a more negative outlook emerging. In April, at the time of the last survey, 44% of those surveyed
believe that prices will be the same or lower in 12 month’s time.

Around 90% of all properties for sale or rent at any one time are marketed on Rightmove. This represents a stock of over one million properties worth in the region of £270 billion.

SURVEYORS are expecting a fall in house prices in the months ahead due to an increase in the supply of properties coming to the market according to the June survey from the Royal Institution of Chartered Surveyors (RICS). However, they do expect the number of sales to rise as the greater choice of available properties will be welcomed by home buyers and therefore boost activity.

A RICS spokesman said:
“A shortage of stock has been one factor holding back transaction activity in the housing market but the abolition of HIPS is helping to belatedly address this issue. This is likely to be reflected in higher sales numbers over the coming months. However, with supply of property now beginning to outstrip demand there is a risk of some modest slippage in prices during the second half of the year.”

New instructions outstripped new buyer enquiries by the highest amount in three years. And although prices are still rising in most of the country, particularly in London and Scotland, there are signs that some areas are starting to turn negative.

THE Financial Services Authority (FSA) today, as part of a significant review of the UK mortgage market, proposed changes to the way mortgages are agreed due to mounting concerns over affordability. These proposals aim to ensure that all lenders practice responsible lending by thoroughly examining mortgage applications in order to ensure borrowers are able to manage the repayments on them. In this way they hope to avoid difficulties before they can grow or get completely out of control.

A few of the main recommendations include abolition of self cert mortgages by introducing Verification of income in order to crack down on borrowers who inflate their income to qualify for a bigger mortgage, affordability checks for all mortgages as well as making sure lenders take ultimate responsibility for deciding whether or not a borrower can manage the size of the mortgage. They also propose to put in place additional safeguards with regard to vulnerable, bad credit borrowers.

Some of the findings that led to these proposals were:

• Income in 46% of households either did not cover mortgage payments and living costs or else just covered them with no money left over.
• Just under 50% of all new mortgages taken out between 2007 and the first quarter of 2010 were obtained without income verification.
• At the peak of the market almost a third of mortgages were on an interest only basis.
• A good number of borrowers rely on future increases on property prices to repay their mortgage and some have no plans at all.

Lesley Titcomb, the FSA director with responsibility for the mortgage market, said: “There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

Consultation on these proposals will close in November 2010.