The rebound in the housing market continued to falter this week. The Royal Institution of Chartered Surveyors (RICS) said that more of its agents reported falling enquiries about buying a house than saw an increase last month – only the second time this has happened since 2008. The balance of surveyors reporting a rise in new sales instructions hit a three-year high. Last week Halifax reported that prices had fallen for a third successive month. The Acadametrics index has shown falls for four months running.
Meanwhile, the Financial Services Authority (FSA) proposed measures to curtail reckless borrowing and lending in the mortgage market. Among these is an effective ban on self-certification mortgages and only allowing people to take out interest-only mortgages if they can afford a repayment mortgage.
What the commentators said
The figures that prompted the FSA’s clampdown “make one blink in disbelief”, said Tracy Corrigan in The Daily Telegraph. In 2007 and 2008 about half of new mortgages were approved without income checks. Over 20% of these ‘liar loans’ have fallen into arrears, more than three times the proportion of mortgages where income was verified.
And there is still “plenty of trouble stored up”, added Corrigan. Of households that held a mortgage between 2005 and 2008, 46% have no money left or go into deficit after mortgage and living costs are accounted for. So “the seeds of the next mortgage crisis have been sown”, said Andrew Hill in the FT.
In the meantime house prices are likely to keep heading south. The abolition of Home Information Packs (Hips) has “brought a lot of property to market” and buyers are still “very cautious”, said John Andrew of RICS. “Sellers now exceed buyers.” It’s hard to see demand rising significantly any time soon. Mortgage approvals are running at around half pre-crunch levels. That partly reflects the fact that “consumer appetite for taking on new debt is limited” while they are concentrating on paying down their huge debt loads, noted Howard Archer of HIS Global Insight.
Appetite for debt is likely to be limited further by the fiscal squeeze, which bodes ill for income growth and employment, as Capital Economics pointed out, while the credit crunch on banks in the wholesale market also has yet to “kick in fully”. The fiscal squeeze, along with a possible rise in interest rates, also implies a rise in supply as forced sales increase.
Note too that houses are still far too expensive, said Ian Cowie on Telegraph.co.uk. The average first-time buyer has to pay 4.4 years’ income to buy a house, according to Nationwide. The average ratio over the last 25 years has been 3.3. The housing market, said Graham Turner of GFC Economics, “is entering a second downturn”.