Mortgage approvals fall almost 50%

by Kay Murchie

According to figures from the British Bankers Association (BBA), there were just 35,417 new mortgages approved for house purchases last month – 18% lower compared with the previous month.

Compared to March 2007, approvals were down 46% – the lowest figure for over a decade.

The slump in mortgage lending by the UK’s biggest banks is a result of the credit squeeze and how banks are tightening their lending criteria as they find themselves restricted by the shortage of funds.

David Dooks of the BBA said the consequences of low banking sector liquidity show up clearly in March data – reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals.

The BBA’s members make up approximately 70% of all mortgage lending in the UK.

The tightening in the credit crunch is continuing to take its toll on the residential property market, according to Simon Rubinsohn of the Royal Institution of Chartered Surveyors.

The Bank of England’s latest swap scheme with the banking sector should help provide a little more liquidity for lenders, but is not going to turnaround the current challenging environment overnight, added Mr Rubinsohn.

Banks are warning that mortgages won’t become cheaper and could get even more expensive over the next few months.

A senior City source warned for now, mortgage pricing will remain high. If anything, it will increase in the short term.

The City source blamed the ’stubbornly high’ cost of raising money in the money markets, which banks use to lend to customers.

Michael Coogan of the Council of Mortgage Lenders said in the short term the trend of increasing prices and products being removed from the market is not going to be reversed.

As and when the banks start lending to each other, the rate for lending will go down and that means that that will start to bring the price down but it is not going to be a dramatic reversal. It is going to be a slow process at best, concluded Mr Coogan.

Housebuilder Persimmon shuts new sites

by Kay Murchie

Housebuilder Persimmon has announced it is to stop building on new sites until market conditions improve, which could result in tens of thousands of job losses.

The country’s biggest housebuilder by market value and No.3 by homes built said sales in the first four months of 2008 had declined 24%.

Traditionally, April is the busiest time for house builders but Persimmon said that in the last 3 weeks it had experienced lower sales volumes and increased cancellation rates.

Chief executive, Mike Farley, blamed the fall on unprecedented conditions in the mortgage market and urged the Government to scrap stamp duty for purchases under £250,000 for all first-time buyers for at least a year.

Mr Farley added it is entirely possible the industry could build only 110,000 homes or less this year.

Shares in the housebuilder fell 6% following the news.

According to building industry sources, the Northern and Yorkshire regions had already experienced job losses.

Many contractors believe the downturn could be worse than the early 1990s slump. When half a million construction workers were laid off between 1989 and 1994.

Last month, the housebuilder said the numbers of visitors to its show homes this year is improving but converting those to sales ‘remained challenging’.

Last year, Persimmon completed 15,905 homes, down 4.8%, while average selling prices increased 1% £189,558.

In January 2006, Persimmon acquired UK housebuilder Westbury plc for a consideration of £643 million.

Property prices could now fall 30% warns fund manager…M&G Optimal Income fund

by Kay Murchie

Recent reports have suggested property prices in the UK could fall anywhere between 5% and 20%.

However, a leading fund manager has warned that house prices in the UK could crash by around 30% from their highest levels recorded last summer.

Richard Woolnough, who manages the M&G Optimal Income fund, said history suggests when the UK housing market crashes, it tends to fall about 25-30% from peak to trough in real terms.

But given that UK house prices increased around 270% from 1995 to the end of 2007, there is a risk that this crash could be worse, explained Mr Woolnough.

Mr Woolnough’s predictions echo those of the International Monetary Fund (IMF) who recently said UK property is overvalued by 30%.

In addition, figures from the British Bankers Association (BBA) show there were just 35,417 new mortgages approved for house purchases last month – 18% lower compared with the previous month.

Compared to March 2007, approvals were down 46% – the lowest figure for over a decade.

Mr Woolnough believes mortgage approvals are a reliable predictor of UK house prices six or seven months ahead and current data imply year-on-year falls of between 5-10% by early autumn.

A projection is likely to worsen, said Mr Woolnough, because the banks are becoming increasingly reluctant to lend, which means mortgage approvals, and therefore house prices, could fall much further.

Mr Woolnough believes the only solution is for the Bank of England to slash interest rates in order to encourage borrowing again, which will eventually revive the housing market.

Rental demand rises 33%

by Gill Montia

The first quarter of 2008 saw a sharp rise in demand for rental property outside London.

Letting agent, Hamptons International, reported a 33% increase in tenancies across all regions beyond the capital, on the back of a slowdown in the housing market.

Over three quarters of Hamptons’ tenancies are currently being renewed beyond their initial terms and new applications received have risen sharply.

In addition to the difficulties faced by potential first-time buyers in securing a mortgage, many are waiting in rental accommodation to see how far house prices will fall.

Their caution is being heightened by fears that the UK economy will enter a recession this year.

Latest property surveys indicate that confidence in the UK housing market is at an all time low and while Hamptons has reported that supply in the rental sector remained stable during the first three months of the year, stock is increasingly under pressure.

Fortunately, widespread predictions that amateur landlords would flee the buy-to-let sector in the face of falling house prices and increased mortgage interest rates have so far proved to be unfounded.

According to the agent’s data, the UK’s leading cities for landlords outside London (in terms of yields) are as follows: Brighton (4.32%), Hove (4.22%) and St Albans (4.02%).

Abbey withdraws buy-to-let lending

Abbey is withdrawing the majority of its buy-to-let mortgages.

The Spanish-owned bank says that the move is temporary and will allow it to focus on products aimed at the residential market.

The lender also reported that it expects the buy-to-let sector to contract and is adjusting its product range accordingly.

From today, Abbey will only offer landlords a two-year tracker mortgage with an interest rate of 6.15% and a maximum loan-to-value (LTV) of 75%. An arrangement fee of £999 applies.

Buy-to-let lenders have continued to withdraw products in the past few weeks causing a headache for landlords needing to remortgage.

Some landlords now face the prospect of reverting to expensive standard variable rates (SVR) because lenders’ criteria are increasingly difficult to meet.

LTV ratios have been hard hit with the disappearance of the 90% LTV product and a reduction in the number of 85% LTV deals.

Last week, Bristol & West increased the cost of loans for landlords by up to 0.4%, to 6.49%.

Meanwhile, the Woolwich has introduced a 1.5% fee for landlords applying for an SVR mortgage and has raised rates on other deals.

According to financial website, Moneyfacts, buy-to-let mortgage offerings have declined to around 145, compared with 806 one month ago.

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Possible housing crash in 2008

by Kay Murchie

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.

First-time buyers facing hardest ever battle

Despite house prices falling, mortgages are becoming harder to secure which means first-time buyers are facing a tough time currently.

There are now only 4,100 different mortgage deals on the market, compared with 15,599 last July. Furthermore, just a couple of months ago, loans of up to 125% of the value of a home were on offer but these have all been withdrawn.

This is according to research from the annual Roof affordability index published by the housing charity Shelter who said an impossible situation is being made even worse by Britain’s mortgage meltdown.

The decade-long housing boom shows that the price of an average first-time property increased from £52,674 in 1997 to £159,494 in 2007.

Furthermore, mortgage repayments used up nearly 21% of the average working household’s income in 2007, compared with 12% in 1997, according to Shelter.

Adam Sampson of Shelter said despite falling house prices, many lenders are increasing their mortgage rates, making an already desperate situation worse.

It means there is a generation of young people and young families being locked out of the housing market without a hope of ever sharing in the asset wealth of the generation before.

David Stubbs of the Royal Institution of Chartered Surveyors said the biggest issue for first-time buyers was finding a deposit.

Saving for a deposit is likely to remain the main barrier to entry to the market as lenders shy away from those buyers who only have a small amount of money to put down, added Mr Stubbs.

Abbey Mortgages has established that 1.1 million first-time buyers are delaying purchasing a home for at least the next 12 months. This is primarily due to the withdrawal of cheap mortgages and the decline in property prices.

Morgan Stanley predict 10% house price falls this year

Analysts at US investment bank Morgan Stanley, predict that property prices will fall by 10% this year and 5% in 2009 and, as a result, will push more than 1 million homeowners into negative equity (where their home is worth less than their mortgage).

Morgan Stanley said our base case is for a 15% fall in nominal prices over two years, our bear case looks for a 25% fall over two years.

Last month’s Great Housing Market Debate saw 150 industry representatives say they believe that property prices will decline in the next 12 months.

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

In the early 1990s, house prices declined by 10.6% over a prolonged period, leaving owners sitting on houses they were unable to sell without the risk of losing large sums of money.

Morgan Stanley’s predictions are similar to that of Vince Cable, deputy leader of the UK Liberal Democrats. He said by next April, 3 million British families could be plunged into negative equity.

Mr Cable’s warning is based on the assessment that there are around three million people whose mortgage currently accounts for 90% or more of the value of their home.

If prices fall by 10% over the next 12 months, they will find themselves in the black hole of negative equity, concluded Mr Cable.

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First-time buyers delaying a property purchase

Abbey Mortgages has established that 1.1 million first-time buyers are delaying purchasing a home for at least the next 12 months. This is primarily due to the withdrawal of cheap mortgages and the decline in property prices.

However, this group of people are advised to invest their deposit wisely. Those delaying purchasing a home would benefit greatly from moving their deposits into high-interest saving account, according to Abbey. This could help make deposits grow faster than house prices, and leave first-time buyers in a stronger position next year.

Abbey said investing the average deposit of £28,000 would generate around £1,820 in interest over a 12 month period.

This amounts to funds totalling £31 billion and wise investment over the next year could make potential buyers an extra £2 million in interest.

In spite of the concerns over the future of the property market, around 624,000 first-time buyers are still planning to invest in their first home in the next 12 months.