Friday 1 February 2008

Increase in UK property repossessions

The finally seems to be a general consensus that 2008 is going to be a bad year for the property market.

Last month both Nationwide and Halifax reported that house prices had fallen in November by 0.9 per cent and 1.4 per cent respectively.

This followed three months of bad property news with various surveys reporting that house prices were slowing at best. But last month Halifax surprised even themselves by reporting that prices in December rose by 1.5 per cent. “Who says there’s a slump?” was the Daily Express headlines as it dismissed crash predictions as “scaremongering”. So can they be right?

Month-to-month figures are very volatile and, as history shows, when the housing market takes a turn for the worse it doesn’t do so overnight.

The Halifax’s chief economist, Martin Ellis, warns that “this mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market”.

It’s important to take a step back and look at what has happened over a longer period. So, since the credit crunch began in August 2007, causing banks to tighten their lending criteria, what has happened?

According to the Halifax, house prices were 1 per cent lower in December than in July, while Nationwide shows a 0.9 per cent rise. Average the two out and, broadly speaking, “prices have been flat since the credit crisis broke”, says David Smith in The Sunday Times.

The Bank of England’s credit conditions survey, published earlier last month, forecasted that mortgage availability will be tight for at least the first quarter of 2008, with most lenders drastically reining in on lending activity.

Alliance & Leicester and Britannia – two of the country’s biggest mortgage lenders – have doubled the minimum deposit they now require from first time buyers to 11%, “in the latest sign that banks are anticipating a downturn in house prices”, says Patrick Collinson in the The Guardian. On top of this many lenders have pulled their loan-to-ration back from highs of 130 per cent to 95 per cent.

Alongside the heavy stamp duty burden, which will make nigh on impossible for first time buyers to buy a home although they might not be too disappointed, given the state of the market. Those who should be worrying are ones already on the ladder.

Homeowners who have a 100 per cent plus mortgage deal will be hard put to find a replacement when their current term runs out, leaving them with the possibility of having to pay off at least part of the loan immediately.

And there are lots of vulnerable, overstretched people out there. In 2007 nearly one in five new mortages were considered subprime, or was made to someone who offered no real proof of income.

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