Property sales have hit a 30-year low as mortgage lending dries up by more than 50% in just 12 months.
The Royal Institution of Chartered Surveyors (RICS) reports that the average number of sales per surveyor is currently just 10.9, the lowest level since records started in 1978. London remains at the bottom of the activity league, with just 6.4 sales per surveyor on average.
Despite new buyer enquiries and sales expectations both picking up during October, RICS says there is still more property on estate agents books than able buyers. This is the main factor depressing prices, it adds.
And although an increasing number of would-be sellers are now renting out their properties rather than selling, RICS reports a drop in the ratio of completed sales to the stock of unsold property in the market. With this ratio generally used as an indicator of future price changes, RICS says property values are likely to continue to fall in the near term.
Seema Shah, property economist at Capital Economics, agrees: "While sharp base rate cuts may stimulate new buyer enquiries, with lending criteria tight, mortgage rates still high, and unemployment rising, we doubt this will materialise into stronger housing market activity. As such, the rate of house price falls is unlikely to slow in the foreseeable future, and may yet accelerate."
A lack of mortgage finance for people without large deposits remains a key factor for a lack of buyers. According to figures from the Council of Mortgage Lenders (CML), the number of people being approved to mortgages has fallen by more than 50% since last year with just 35,000 house purchases loans during September.
The value of mortgage lending in September was just £5 billion, down 15% in both the volume and value of loans and less than half the levels seen in September 2007.
Even remortgage activity, which has so far remained stronger than home purchase, has taken a significant hit in the past 12 months with just 62,000 remortgage loans worth £8.5 billion in September. This is down 15% in volume and 16% in value from August.
On a positive note, the temporary increase in the stamp duty threshold to £175,000 saw 51% of homebuyers avoiding stamp duty in September, compared with 22% in September last year.
Michael Coogan, director general of the CML, says: “Banks and building societies do want to support homeowners, but they have limited funds available and are, quite reasonably, taking a prudent approach to risk. If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending.”
The CML’s figures show the number of first-time buyers is dramatically lower than 12 months ago, with only 13,400 people entering the market in September down from 28,200 in the same month last year.
According to online mortgage website mform.co.uk, the best fixed rate deals for first-time buyers are now up to 0.75% more expensive that the best deals a year ago. The website says the most competitive two-year fixed rate deals for borrowers with a 10% deposit are currently 6.44% compared with 5.69% in November 2007
This is despite the Bank of England base rate now standing at 3%, down from 5.75% last year.
Banks and building societies argue base rate is almost irrelevant to mortgage rates as the cost of inter-bank lending remains high. However, mform says lenders could afford to cut costs substantially as the key inter-bank lending rate, three-month Libor, is currently 4.496% compared with 6.6% this time last year.
Francis Ghiloni, marketing and business development director of mform.co.uk, says: “It defies logic that the best fixed rate deals for first-time buyers are currently more expensive than a year ago when base rates have been cut so dramatically.
“However the events of the past few months have shown that logic does not currently play much of a role in the UK mortgage market. If you are feeling generous you might argue that lenders are facing a tough set of challenges of balancing profitability against responsible lending.
“However if you are feeling less generous you could easily make a case that profitability is the sole determinant for lenders in the current market. On the face of it they are enjoying very comfortable profit margins and could make substantial cuts.”