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Is a housing market recovery in sight?
By Rebecca Atkinson
House prices have been falling for more than 12 months now, with the latest Nationwide figures revealing property values were 16.6% lower in January than the same time in 2008. The latest 1.3% fall this month leaves the average price of a typical house at £150,501.
While falling house prices are a concern for existing homeowners, they represent an opportunity for first-time buyers or those looking to buy. The Royal Institute of Chartered Surveyors (RICS) reported a 17% increase in new buyer enquiries at the end of last year, as consumers went in search of bargain opportunities.
And property website Globrix says it saw more searches in the first two weeks of January than during any full month in 2008 as a result of a 111% increase in sellers lowering asking prices.
Meanwhile, figures from the Bank of England show mortgage lending increased in December from the previous month.
And, earlier this week, Woolwich launched its cheapest mortgage ever. The lender, which is owned by Barclays, is offering a fixed-rate mortgage at just 2.29%. This is a full 1.5% cheaper than Woolwich's previous fixed-rate offering, and is the lowest mortgage on the market for either tracker or fixed-rate deals.
"We are seeing some of the best mortgage rates in a generation," says Andy Gray, head of mortgages at Woolwich. "This is down to increasing competition and the falling cost of lending for the banks."
This seems to go against what we know about the credit crunch. A lack of funding to banks has prevented lenders from offering competitive mortgage rates and forced them to tighten their criteria.
So, is all this evidence that the housing market is stabilising, and potentially even on the road to recovery?
What lies ahead?
However, Martin Gahbauer, the building society's senior economist, says it is too early to say if this marks the start of a sustained improvement. The recession, and associated rise in unemployment, as well as continued mortgage restrictions and a lack of consumer confidence, do not bode well for the future.
"A pre-condition for recovery in the housing market is an end to the deterioration in the wider economy," says Gahbauer. "At the moment, the economic news remains downbeat, with official figures showing that the economy shrank by 1.5% in the final three months of 2008 and confirming that the UK has entered its first recession since the early 1990s."
However, he adds that lower interest rates and the Government's second banking bail-out do provide "a path for a future recovery out of recession".
But the road to recovery still appears to be some way off.
Seema Shah, property economist at Capital Economics, says the Bank of England's figures showing an improvement in lending in December mean housing market activity shows signs of stabilisation.
But she adds: "The continued tightening in lending criteria and drastically weakening economy means that it is unlikely to recover to more normal levels for the foreseeable future. At current levels, mortgage approvals suggest house prices are set to decline significantly further."
Shah believes that activity is unlikely to recover "significantly" in the coming months.
Mortgages
David Hollingsworth, mortgage specialist at London & Country, says the launch is good news as it "throws down the gauntlet" to other lenders.
But he adds: "The biggest factor holding back mortgage lending is high LTV requirements. This shows no signs of coming down."
For example, Royal Bank of Scotland recently cut its two-year fixed-rate to 3.49%. However, this is only up to 75% LTV. If you only have a 15% deposit, therefore requiring an LTV of 85%, then you would have to pay 5.49%.
"We need to see a narrowing of the difference in rates between LTV bands, and more choice for people with smaller deposits," explains Hollingsworth.
The lack of mortgage credit means that the increased consumer appetite for property is not translating into more sales. Gahbauer says other reasons why higher buyer enquiries have not translated into higher approvals include the uncertain economic outlook and high inflation.
"The fact that house prices still remain high relative to earnings reinforces this more cautious approach among potential buyers," he adds.
Capital Economics says house prices are still overvalued and must come down - potentially by 35% below their October 2007 peak.
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