UK property market remains firmly in doldrums

With the UK economy going into recession in 2009, the housing market is expected to tumble further before any possibility of an upturn around 2010, when it is hoped that spending for the London Olympics might boost London’s economy and the housing market.

[ClickPress, Sun Dec 07 2008] With the UK economy going into recession in 2009, the housing market is expected to tumble further before any possibility of an upturn around 2010, when it is hoped that spending for the London Olympics might boost London’s economy and the housing market.

House prices in the UK fell by more than 10% during the year to the last quarter of 2008 – the biggest annual decline since 1992 – and could fall to 25% over the next two years. The market has been badly hit by the credit crisis, with lenders being much more cautious in granting mortgages and house loans, and first-time buyers finding it ever harder to move on to the property ladder (and impossible without a large deposit). According to the Council of Mortgage Lenders (CML), first-time buyers took out only 13,400 loans in September 2008, compared to the average of 31,000 loans approved monthly from 2005 to 2007.

The fall in house prices can be seen as a gradual correction to the overinflated prices of the UK property boon from 1996 to 2007, when house prices soared more than 200%. The International Monetary Fund (IMF) has recently said that UK house prices were overvalued by 20% to 30% and will see a correction over the next few years.

The government has taken steps to try to alleviate the impact of the economic crisis on the housing market, including a year-long stamp duty ‘holiday’, which exempts houses costing less than £175,000, and broad measures to help first-time buyers and families, including a mortgage rescue scheme for those families most at risk from repossession, and a shared equity scheme to help first-time buyers.

Another dramatic cut in the base interest rate was made by the Bank of England on December 4th, which dropped one percentage point off the cost of borrowing, from 3% to 2% – the lowest rate since 1951 and equal to the all-time historic low in the UK. This followed the shock cut in November, when the rate was unexpectedly cut by 1.5% to 3%.

However, despite increasing pressure from the government on lenders to pass on the lower rate to borrowers, it is expected that not all borrowers with tracker (or variable rate) mortgages will see the full benefits. Following the rate cut in November of 1.5%, 87 out of 95 lenders with a standard variable rate (SVR) passed on some of the cut to their customers, while 57 did not reduce their SVR by the full amount, and some cut it by only 0.25%. A similar pattern is expected this time.

If lenders pass on the cut in full, homeowners with a typical £150,000 mortgage should see their monthly repayments reduce by £85, and those with a £250,000 home loan would pay £142 less per month.

Halifax, the UK’s biggest mortgage lender, confirmed this week it would pass on the cut to its borrowers with tracker mortgages.

Notwithstanding the strong economy-boosting measures taken by the government and the Bank of England, the housing market is not expected to bottom out before 2010 – at which time it is hoped that the massive spending on projects for the 2012 London Olympics will help push the economy and housing market towards recovery.




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