A chill went through Britain’s middle classes this week as Rightmove announced that asking prices for UK houses fell by 2.6% last month. That’s the largest drop in five years. What’s worse, the falls are across the board: even in London, a city most people had managed to convince themselves would be immune from any property slowdown, asking prices fell 2.5%. Does this mean that the crash we have been predicting (for far too long) is finally with us? Probably not, said David Smith in The Times. Prices may look like they have fallen off, but once you take into account the “distortion” caused by the introduction of home information packs – which resulted in artificially low sales volumes as unhappy vendors held back from releasing property – it doesn’t look so bad.
The Observer wasn’t so convinced, pointing out that HIPs alone don’t explain the raft of other data suggesting that the market has peaked. The Royal Institute of Chartered Surveyors (Rics) declared that more estate agents reported a decline in UK house prices than reported a rise in August – the first time this has happened in 22 months. On top of this, new buyer enquiries dropped at their fastest pace in three years; the latest mortgage approval figures also showed a decline. So if it isn’t HIPs, what is it? Affordability, says The Daily Telegraph. Prices are at historically high levels relative to incomes, and with rates rising and the credit crunch kicking in, this just isn’t sustainable. Indeed, even Simon Rubinsohn, the chief economist at Rics, thinks the market is looking fragile. Talk of a looming crash is “legitimate and not irresponsible”, he told the BBC: Rubinsohn thinks there is a 10% chance that we will soon see a housing crash to rival the 1990’s price crash, and a 20% chance that London prices will drop 10% within the next year.
These odds have probably been helped along by the impact of the Northern Rock debacle. The state of the bank makes no difference to those who have mortgages with it already. Northern can’t call in the loans or breach any contracts by changing fixed rates, for example. Where there is an impact, however, is on the wider market. Northern Rock was responsible for 19% of new mortgages in the first half of 2007 and sold many to marginal borrowers on very high income multiples. It won’t be doing that any more, and nor will many other lenders: whether Northern survives or not, a large part of the mortgage market – the part that has done the most to drive our property bubble – had just dried up.