House price falls not over yet
One of the UK’s biggest mortgage lenders has warned that house price falls are far from over, with the threat of redundancy combined with a lack of credit deterring would-be buyers from moving up the ladder.
The latest house price figures from Halifax, part of Lloyds Banking Group, reveal that house prices fell by 1.7% in April, in comparison to a 1.9% fall the previous month. Although the rate of house price falls seems to have slowed slightly, this is mainly down to the season – with spring a traditionally busy time in the housing market – and does not indicate that prices will soon stabilise.
Martin Ellis, housing economist at Halifax, says: “Rising unemployment, low consumer confidence and the reduced availability of credit are all expected to exert downward pressure on the housing market over the next few months. As a result, further house price declines are likely."
For first-time buyers, now ironically represents a good time to buy, with property looking increasingly affordable. The house price to earnings ratio is at its lowest level since 2002, plus mortgage rate cuts means monthly payments have fallen since October 2008.
Sellers are also being more reasonable about asking prices; according to property website Globrix, 3,886 sellers dropped their prices by an average of £16,793 in April.
However, banks continue to restrict their lending, reserving the most competitive deals for people with big deposits. In addition, a lack of confidence in property is putting many people off buying.
While consumer confidence has been damaged by the economic crisis, there are signs it is improving. Nationwide Building Society reports that April saw the largest increase on its consumer confidence index in nearly two years.
Nationwide says the increase could reflect a spate of economic data that suggests the recession, while not exactly easing, certainly doesn’t appear to be getting worse.
However, consumers remain concerned about the current economic environment and the outlook for employment. And the building society says it is too early to say whether April’s jump represents the start of an upturn in confidence.
"In recent weeks, we have seen a strong rebound in global equity markets and some tentative signs of improvement in housing market indicators, both of which may have contributed to the marked upturn in consumer confidence during April,” explains Martin Gahbauer, senior economist at Nationwide senior economist.
“However, it is likely that the UK economy will continue to contract for some time yet, so it is too early to say whether this trend in confidence will continue into the next month as consumers continue to digest further industry data and the 2009 Budget."
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.