Is the British property market finally sparking back to life? After months of price falls, Halifax reported a 1.9% increase in January, while Rightmove claimed that sellers raised asking prices 1.2%. Meanwhile, the chancellor, Alistair Darling, effectively ordered Northern Rock to lend £14bn of new mortgage capital to homeowners and first-time buyers this week. That prompted NCB stockbrokers’ Simon Willis to tell Bloomberg that “the Rock” should be able to embark on a “significant spending spree” by offering mortgages of up to 90% of the value of a property at a time when most lenders will loan only 75% or 60%.
Meanwhile, Monetary Policy Committee member Kate Barker warned in the FT that a long-term lack of housing supply, made worse by house-builders cutting jobs to counter the downturn, would lead to prices “spiralling up again once confidence returns”. The Royal Institution of Chartered Surveyors reported a third monthly rise in buyer enquiries. So are we seeing spring arrive early for property?
Hardly. Even Rightmove’s Miles Shipside wrote off the 1.2% increase in asking prices as “false optimism” among sellers. Some, he commented, seem to assume that because not many properties are for sale – the National Association of Estate Agents (NAEA) reports that the average stock at estate agents fell by 25% in January – buyers will pay daft prices for those that are. As for the Halifax’s 1.9% rise, there are two reasons to believe this is just a blip. First, their figures are based on mortgage approvals and thus are hardly representative of a market increasingly dominated by cash buyers. Second, the more comprehensive FT index recorded a 1.4% fall in January to bring the annual rate of change to –12.2%, “the largest fall that we have ever recorded”, says Dr Peter Williams of Acadametrics.
As for Northern Rock, despite the fanfare that greeted its return to mortgage lending, that £14bn isn’t quite what it seems. For 2009 the amount available is expected to be nearer £5bn, with another £9bn to follow in 2010. And £5bn represents just 1.9% of 2008’s gross total mortgage lending of £258bn. What’s more, just because the bank can now offer mortgages with a 90% loan-to-value ratio, that doesn’t mean it will. With property prices forecast to fall anywhere between another 10%-30%, it would be reckless for any bank to plunge a first-time buyer into near-guaranteed negative equity – particularly a government-owned, hence politically sensitive, bank like Northern Rock. And many buyers – fearful in particular about future job losses – will be sensible enough to hold off, regardless of the loan terms on offer.
And as Ross Clark points out in the Spectator Business, the “great British housing shortage” was always a bull-market myth that has now been exposed. Kate Barker, who is “Gordon Brown’s most favoured expert on housing”, seems oblivious to the fact that rents are falling, not rising as they should if people really can’t find homes. Indeed, Hamptons recently revealed that in prime parts of London the annual rate of decline is running as high as 16%.
Barker also fails to recognise the one-off contribution to rising prices made by buy-to-let speculators using cheap credit. Many of those properties have never seen sight of a tenant and will be sold. In short, says Clark, “it’s hard to recall a government so determined to ignore what the market is trying to tell it”. Don’t make the same mistake by diving in now.
A week in the property market
• The number of mortgages approved for new home purchase rose to 23,376 in January, according to the British Banking Association. That was up 4% on the previous month, but down 43% on the year.
• House-builder Redrow reported that its house sales halved in the last six months of 2008. Completed house sales fell to 1,042 from 2,111 during the last six months of 2007. The average sales price fell to £140,500 from £162,700.
• The number of houses repossessed in 2008 rose to 40,000, up 53% on 2007, reported the Council of Mortgage Lenders. Conditions for landlords in particular deteriorated sharply. Buy-to-let repossessions rose to 4,000 from 2,000 in 2007, while the number of buy-to-let mortgages more than three months in arrears rose more than 250% to 26,800.
• American house prices fell by 2.5% in December, according to the S&P/Case Shiller index, which measures prices in 20 cities. Prices were down 18.5% on a year earlier and have now fallen by 27% since they peaked in 2006. The rate of decline also picked up, from 3.5% in the third quarter of 2008 to 7.2% in the final three months of the year. The greatest falls were in Phoenix (down 34%), Las Vegas (down 33%) and San Francisco (down 31%).
• Meanwhile, commercial property prices in America fell by almost 15% in 2008, according to the Moody’s/REAL National All Property Type Aggregate Index. The fall takes prices to their lowest levels since 2005.