Possible housing crash in 2008

According to many property experts, the bubble could be about to burst on Britain’s booming property market. A crash could wipe at least £450billion off the value of the country’s housing stock. The results would be a flurry of bankruptcies and repossessions.

According to research by the Bank of America, there is a one-in-five chance that the UK housing market will experience a severe crash in the next 12 months. The Bank states that property prices are currently overvalued by at least 20%.

Bovis Homes and Barratt Developments, the housebuilders, have recently indicated that the 5 consecutive interest rate increases have resulted in slowing growth in the property market.

In addition, record levels of mortgage and unsecured debt and buy-to-let enthusiasts are making the market even more unpredictable. Many hold the Gordon Brown responsible for forcing homeowners with higher taxes and his unwillingness to increase stamp duty thresholds in line with house price inflation.

Financial institutions and analysts believe that current economic circumstances are indicating a crash.

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20% fall in house prices say Capital Economics

Capital Economics, the macroeconomic research consultancy, believes property prices could fall by up to 8% this year.

The organisation then predicts a 10% fall in 2009. Added to the fall in property prices during the final months of last year, means prices will end approximately 20% lower than their 2007 high.

The predictions in property price falls are revised due to the long lags in the house buying process, house price data based on mortgage approvals reflect decisions made several weeks, or even months, earlier, according to Ed Stansfield, property economist at Capital Economics.

The data will not yet be fully reflecting the impact of the tightening in lending standards that we have seen this year, nor the recent falls in consumer confidence, added Mr Stansfield.

Last week, analysts at US investment bank Morgan Stanley, predicted that property prices will fall by 10% this year and 5% in 2009.

Furthermore, Neil Woodford of investment house Invesco Perpetual, said property prices across the UK will fall 8% to 10% this year.

Halifax and Nationwide have both reported falls in property values, while the Royal Institution of Chartered Surveyors (Rics) said confidence in the property market is at a record low.

Stamp duty holidays for first-time buyers being considered

The Government is considering cutting stamp duty in a bid to kick-start the property market.

The UK property market is in danger of grinding to a halt with prices falling at the fastest rate since records began over 50 years ago. Furthermore, mortgages are becoming harder to obtain.

In addition, over the last 12 months, the number of homes being sold by estate agents has halved as some economists are predicting further price falls.

A recent meeting between housing minister, Caroline Flint, and experts from the Royal Institution of Chartered Surveyors, took place where plans for reforming stamp duty were discussed.

The Minister explained that like all other taxes, stamp duty rates and thresholds, are kept under on-going review as part of the Budget process.

Reducing stamp duty or offering stamp duty holidays to first-time buyers is being considered. Furthermore, increasing the price bands at which stamp duty is charged is another option.

Ten years ago, stamp duty was charged at 1% on all properties purchased for £60,000 and over.

However, it is currently charged at 1% on homes bought for £125,001 to £250,000; 3% between £250,001 and £500,000, and 4% over £500,000.

Official figures show that over the last 10 years, a whopping £31.5 billion has been paid by homebuyers.

According to many experts, stamp duty is one of the major factors that is discouraging buyers from the market.

However, according to Ministers, changes to stamp duty would only make a difference if they were accompanied by further efforts to increase the supply of mortgages.

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Sale-and-rent-back misunderstood…gaining popularity

Despite the adverse publicity surrounding the sale-and-rent-back sector, a recent survey has found that around 50% of homeowners would consider making use of such a scheme if they were under threat of repossession.

However, the research by financial website Fool.co.uk also revealed that homeowners who may opt for such a solution have low levels of understanding about the schemes.

Twenty-six per cent of respondents thought that a sale-and-rent-back agreement would give them the option to stay in their homes indefinitely.

Meanwhile, 15% thought they would receive the full market price for their home.

In reality, some sale-and-rent-back companies pay less than 60% of the market value for properties and tenancy agreements do not guarantee continued occupation by the previous owners.

In addition, if the sale-and-rent-back operator is unable to meet mortgage payments, homeowners who have become tenants can be evicted.

The sector has been expanding rapidly since the onset of the credit crisis and the Office of Fair Trading is currently investigating the industry, while various other bodies are calling for schemes to be regulated.

Last month The National Landlords’ Association, which represents private residential landlords, published guidelines for its forthcoming Code of Practice for members involved in the sale-and-rent-back market.

Property Doom and Gloom

According to the Halifax, house prices in the UK fell by 2% last month, and prices are 6.1% lower than they were compared with this time last year.

The UK’s largest mortgage lender said the average home now costs £180,344, which is the same level as in August 2006.

House prices are on a downward spiral due to a lack of activity in the market said the lender. A decade-long housing boom and the ongoing mortgage squeeze are to blame for the latest monthly fall.

Recently, the lender predicted that UK property prices will fall by around 9% during 2008, after it revised its forecast from February when it said that the market would be flat this year.

Its rival, the Nationwide, said that house prices fell by 0.9% on average last month, with the average home costing 6.3% less than 12 months ago.

The news comes as further job losses have been announced in the housebuilding industry as Barratt’s is the latest to announce 1,200 job losses due to falling house prices and the lack of mortgages.

Yesterday, Bovis Homes and Redrow confirmed that they are shedding shed 400 and 550 jobs respectively. Earlier this week, Persimmon announced 2,000 job losses.

Northern Ireland property prices drop

After months of achieving new records, Northern Ireland property prices have dropped and the Belfast Telegraph has been informed by industry sources that those who purchased a property a few months ago may have lost money in the current market, igniting fears of negative equity.

One estate agent based in Ulster remarked that one more interest rate rise could hammer property price growth down to nothing later this year.

The quiet summer period, rising interest rates and more new houses being released are thought to be responsible for house prices falling by up to 7%.

Many estate agents in Northern Ireland say the record-breaking house price growth noted in early 2007 has steadied. However, many believe that the market will recover after the summer slowdown.

McGranaghan Estate Agents in west Belfast estimated that there had been a reduction in house prices in some areas of 5-7%. The previous 12 months saw increases in the same areas of 40-50% over the previous 12 months. The agent declared that the slowness of the current market is as a result of interest rate rises.

The estate agent predicted that autumn should see renewed confidence in the market and growth of around 8% is anticipated by early 2008.

A spokesperson for Ulster Bank echoed the agent and said that the market is in a state of instability but added that it may be good news for first time buyers.

Goldsmiths Estate Agents in west Belfast commented that it is a buyers market now, the days of making a 50% profit are long gone. He added that some sellers are having to accept offers below the asking prices.

Possible housing crash in 2008

According to many property experts, the bubble could be about to burst on Britain’s booming property market. A crash could wipe at least £450billion off the value of the country’s housing stock. The results would be a flurry of bankruptcies and repossessions.

According to research by the Bank of America, there is a one-in-five chance that the UK housing market will experience a severe crash in the next 12 months. The Bank states that property prices are currently overvalued by at least 20%.

Bovis Homes and Barratt Developments, the housebuilders, have recently indicated that the 5 consecutive interest rate increases have resulted in slowing growth in the property market.

In addition, record levels of mortgage and unsecured debt and buy-to-let enthusiasts are making the market even more unpredictable. Many hold the Gordon Brown responsible for forcing homeowners with higher taxes and his unwillingness to increase stamp duty thresholds in line with house price inflation.

Financial institutions and analysts believe that current economic circumstances are indicating a crash.

Mortgage lending slumps 44% year-on-year

Figures released from the Council of Mortgage Lenders (CML) have revealed that mortgage lending in May was down 44% year-on-year.

Furthermore, homeowners opted not to re-mortgage due to soaring arrangement fees. Statistics showed that there were only 71,000 loans for re-mortgage in May this year, down 14% from the previous month.

In 2003, the average arrangement fee was around £299, however since the UK mortgage market has deteriorated, a typical arrangement fee can now be over £2,000.

While mortgage agreements increased by an insignificant 4% between April and May on an annual basis, the number nearly halved as home loan rates continued to increase, according to the CML.

First-time buyers have been hit badly by the mortgage freeze as a result of the credit crunch. The CML figures revealed that first-time buyer mortgages were down 41% from May 2007 to May 2008.

It seems that borrowers are looking for security in the current economic climate as the most popular mortgage is the fixed-rate, making up for 66% of all mortgages in May.

Michael Coogan of the CML explained that lending levels continue to be lower than last year and any recovery is not expected in the short-term. There is little indication that the special liquidity scheme is increasing the flow of funds to the industry or lowering the cost of funds as was desired.

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London’s commercial property deals 50% down on last year

Commercial property transactions in the City of London and London’s West End in the first half of 2008 have dropped by 50% in comparison to those carried out in the first half of 2007.

Figures from Cushman & Wakefield (C&W) indicate that the volume of investment transactions in the first half of this year fell to £4.9bn. During the first six months of 2007 transactions totalled £10.3bn.

As an illustration of the bleak state of the market in London, in the second quarter half of the turnover in the City of London came from the sale of just one building. Middle Eastern investors bought the Willis building from British Land for £400m in May.

A partner at C&W has predicted that yields will continue to rise and turnover will remain subdued as rental levels are beginning to come under pressure and the availability of finance is continuing to be restricted and expensive.

The market in the West End has been held up by retail property deals rather than offices, with transaction volumes falling from £1.4bn to £930m.

With the historical attractions of the West End being balanced against pressure on office rents, continuing shortage of debt and an economy faced with less disposable income, the outlook remains one of caution.

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Falling house prices means over 20,000 facing negative equity

With the continued slide in house prices, figures from the Council of Mortgage Lenders suggest that there is likely to be an increase in the number of people whose mortgage is worth more than their property.

In the 12 months to the end of March, over 23,200 homeowners who took out a 100% mortgage could fall into negative equity, according to the figures.

Last week, US investment bank Citigroup said since house prices started to fall late last year, 250,000 Britons are in negative equity.

The US bank believes that property prices could decline by as much as 15% by the end of 2008. Such a drop would leave at least a million homeowners in negative equity.

Furthermore, back in April Liberal Democrat Treasury spokesperson Vince Cable, predicted that three million households could fall into negative equity over the next 12 months.

All lenders have withdrawn their 100% plus mortgage products since property prices have fallen and many lenders have raised interest rates and are turning borrowers away if they do not have a deposit.

In related news, figures from the Royal Institution of Chartered Surveyors (Rics) have shown that the number of transactions per estate agent has hit a 30-year low.

During the months of March, April and May, Rics reported that an average of 17.4 transactions had been completed, down from 18.5 in the 3 months to April. This represents the lowest figure since records began in January 1978.

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