subject: Quick Move Now Articles Sep 10 (2) [print this page] House Prices Down in July House Prices Down in July
The latest RICS survey shows average house prices fell in July. The fall is being blamed on an increase in supply but also a fall in demand because of economic uncertainty and the possibility of a double-dip recession.
One RICS member in Worcestershire said the markt is the worst that it has ever been, blaming the Government's deficit reduction measures for stalling demand.
A separate report shows that the conditions for first-time buyers is the worst in decades, showing that they need to borrow more and raise a larger deposit than at any point in the last 25 years.
We thought we'd highlight a recent conversation with a client which displays just how difficult it is to get a mortgage.
They are a couple earning 80,000+ and want to buy a house for 225,000 with a 50,000 deposit.
3 years ago they would have had hundreds of lenders chasing them for their business now they are struggling to get a mortgage offer!
They more than qualify the lenders criteria but are now having to jump through hoops to satisfy the underwriters. After providing endless bank statements, wage slips and having proved the sources of the deposit they are being asked to provide more and more completely irrelevant information.
All this is delaying the mortgage offer, it has been in the system for nearly 8 weeks, which is making the vendor of the house they are buying very nervous.
In the past lending to such a low risk, high deposit client would be made automatically with little or no checking by underwriters.
What is the reason for this?
Maybe the lender has bad debts caused by poor qualification and is now over-compensating. Or maybe they need to be seen to be lending but don't really want to until they get their balance sheets in order and are therefore making it difficult for applicants so to discourage or delay lending.
Now we all agree the banks made bad loans and they should learn from their mistakes. However when a perfectly good client requires lending it should be available without needless red tape which slows what is already a very slow process.
Latest data indicates falling house prices (see chart below). We haven't seen such consistent house price falls from all the main trackers since the dark days of 2008.
All these statistics fluctuate but such consistency may well be an indicator of difficult times ahead.
The only tracker recording an increase was the Land Registry which records changes in actual completion prices. The others all track values earlier in the sale process e.g. asking prices or mortgage valuations and are therefore more indicative of what the market is doing at a given time.
We believe that market conditions will be much more difficult in the second half of the 2010 and we could well see significant house price falls and falling volumes of sales.
Three main factors will contribute to this situation:
Unemployment-The well publicised public sector redundancies will impact overall unemployment levels just as we come out of a major recession. We would expect this to lead to increasing distressed sales which may drag down prices. The impact will differ across the country as overall dependency on public sector jobs varies greatly.
HIP's withdrawal-The coalition government has withdrawn home information packs. This means there are no up upfront costs to put your home on the market. The volume of property on the market has therefore increased dramatically. Rightmove has recorded a 22% increase in number of home sellers. At the same time demand has been subdued, so the old law of supply and demand would suggest that prices are likely to fall.
Mortgage lending remains very restrictive. Majority of buyers need a mortgage to buy their next home so this is reigning in demand which will drive prices lower. Recent data from BBC suggests 58% of mortgage deals require a deposit of 25% or more. With average house prices still over 186,000 that means a deposit of 46,000 which is not feasible for a huge number of buyers who used to drive the market in previous years.
