Those who remember the Road Runner cartoon will know there was always a moment, just after Wile E. Coyote was tricked for the umpteenth time into running off the edge of a tall cliff, when he appeared to be momentarily suspended in mid-air before plummeting towards the ground.
Well, UK house prices have just had their Wile E. Coyote moment. They rose, they stalled, and now they are unquestionably in freefall. According to the Nationwide, prices fell 2.5% in May, significantly more than they did in April (0.9%) and the most since Nationwide’s records began back in 1991. The average house price in the UK, on Nationwide’s numbers, is now £173,583. That’s 4.4% – or £8000 – less than this time last year. Worse, prices have now been falling for seven months in a row, the longest stretch of its kind since 1992.
It is unlikely that anyone save a few particularly optimistic estate agents will be surprised by any of this – the warning signs have been clearly visible for months. Generous income-multiple and loan-to-value mortgages have long since disappeared, buyers have all but vanished and any hopes of interest rate cuts are history now that the Bank of England is, as it probably should be, firmly focused on taming rising CPI inflation.
Meanwhile lenders looking for profits, not market share, continue to pile on the pressure – Abbey for example has just upped the ante by raising its average mortgage rate by 0.44% in response, largely, to the ongoing headache of a three-month inter-bank lending rate that remains stubbornly around 5.8%, well above the 5% base rate.
So how much worse can things get? The latest mortgage approvals figures from the British Bankers Association are a good guide, since without a loan most people can’t afford a house, and a 39% fall this April compared to last year can only mean more bad news for prices – typically price changes lag mortgage approvals by anything up to six months. And with only one member of the Bank of England’s monetary policy committee, David Blanchflower, voting for a rate cut at the last meeting, no-one should expect help with their mortgage payments from the Old Lady any time soon.
Capital Economics, once derided by many commentators for being overly bearish, now look to have it about right: “this housing market downturn is looking likely to be just as bad, if not worse than, the early 1990s slump.” Although ultimately, as the government’s housing minister, Caroline Flint, unwittingly revealed on a confidential briefing note, “we can’t know how bad it will get”, if you are thinking of buying a property now it is probably best you think again.