House prices are sliding as a result of the difficulty in obtaining mortgages.
Homebuyers are facing the consequences of the profligate behaviour of the
banks whose executives had been focused primarily on their own payouts.
Inflation is gathering pace, thanks to higher food and fuel bills and,
according to Nationwide, the average property value is £10,077.
This last detail is the clue that we are not talking about 2008 but 1974.
Nationwide's latest average house price may be £178,855, but there are
parallels between the Glam Rock era and the Amy Winehouse age.
During the boom of 1972-73, smaller banks lent imprudently to property
companies. These banks came close to collapse when interest rates were
raised late in 1973; the Bank of England had to bail them out. The word
“crunch” was more associated with the toffee-filled Curly Wurly, the
decade's most celebrated confectionery launch. But the squeeze facing
borrowers was similar to the effects of today's credit crunch, although not
in every way. The loan clampdown of 1974 affected only men; single women did
not apply for mortgages as they always faced refusal.
This week Abbey and several other banks once again tightened their lending
criteria. The fear that the scarcity of finance will continue until the end
of 2008 and beyond is the main reason why there are now more predictions of
large price falls.
The economist David Blanchflower thinks it “not implausible” that the market
could fall by one-third. Yolande Barnes, Savills' residential research
director, forecasts a 25 per cent decrease by the end of 2009 if the credit
crunch carries on. HBOS talks of “modest declines”.
Whichever view you find most persuasive, there is no doubt that, while sellers
are now being more realistic about asking prices, transactions are falling
through because buyers cannot get mortgages. Banks - previously happy to
hand out self-certified loans to individuals with no proof of their earnings
- have become ultra-cautious even with the creditworthy. In one case, a man
borrowing just £200,000 to buy a £750,000 property had to show he had a
substantial sum in spare savings.
More interest rates cuts might not steady bankers' nerves, but they would lend
support to the housing market, or so says Professor Blanchflower, who
deplores the slowness of the Bank of England's monetary policy committee
(MPC) in this regard. He is on the MPC, but takes issue with other members.
Nationwide's April 2008 survey gives weight to the Blanchflower claim. There
has been much emphasis on the 1.4 million borrowers whose repayments will
soar when their super-discount fixed rate deals expire this year. But
Fionnuala Earley, Nationwide's chief economist, says that 5.5 million
borrowers with variable rate and tracker loans (linked to the base rate) are
much less vulnerable, having benefited from the 0.75 per cent base rate
reduction since December.
Such figures are one major difference between 1974 and 2008: the property
statistics industry is a recent phenomenon. In 1974, no one could have
foretold to what vast extent the economic climate and the financial position
of single women, single men, couples and families would be affected by the
fate of the housing market. The banks should be aware of this as they decide
on their lending strategies for the rest of 2008.
OFF THE TRACK
Inside Track Seminars, which claimed it could turn “any bright and hungry
person” into a buy-to-let millionaire, has become a casualty of the
downturn. The company called in the administrators this week, as we report
on page 4.
Its legacy will be a set of principles as to how not to be a successful
amateur landlord. These involve paying £2,500 for a hard-sell session where
you will be urged to borrow to buy citycentre flats you have not seen. Quick
profits will be promised, although the values of such properties are falling
because they are in over-supply. The main inducement will be a discount on
the price of the apartment, although the developer would probably offer the
same discount if you contacted him directly.
Moreover, it will be nothing like the size of the reduction now being enjoyed
by the professional buy-to-let investors snapping up whole blocks of such
apartments.
COUTURE CRIBS
The prospective purchaser of a £25 million London mansion got gazumped last
week. But this is not the only proof that the credit crunch and the
super-rich have yet to become acquainted. The most expensive of the 120
homes at the Palazzo Versace Dubai development, launched this week, will be
£12 million; the smaller ones are about £2 million. The Versace interiors,
shown above, may look florid, but they cannot compete with the purple prose
of the press release which talks of “exclusivity, beauty, quality and
opulence.” A bathrobe is thrown in with the deal - value £1,500.
This is a response to /property/article377324.ece
Spanish residence documents are no longer being given to EU nationals, clearly discriminatory. Social Security health cover for residents is only available in theory, unless you have a job or pension.
Chris Mathieson, Santanyi (Mallorca), Spain
If you put capital into stocks towards a pension and it doubled it's value in 10 years and then lost 25% in a downcycle it wouldn't even merit a comment. Why does the prospect of such an event in property excite such debate ? No long term investment goes up in a straight line.
SC, Preston,
Why gloomy news?It's great news for our kids isn't it?We want to give them the best education and a good job. It's GLOOMY news if prices increase BECAUSE it means that NORMAL people cannot buy a house.Next time girls say GOOD news prices are falling, BAD news prices increasing.Think of your children
PAUL, HARROW,
Sellers need to bear in mind that things will get much worse than they think in the future.
Prices will fall hard, yes, but now that all confidence has - rightly - gone from the market, people will be VERY cautious about buying for many years to come.
Pat, London,
Give us some good news: Prices in the capital are up 9.1% in the capital in the last year?
What is the good news in high inflation? I must still be on a different planet.
Tony Wilson, Maidstone,
Halifax are talking about mid-single digit prices declines but their average house price is 5.3% down compared to March 07 (Halifax works out price increases/declines based on the previous 3 months)
Also they said a while ago that prices would be flat this year
Why would they be right this time!?
Richard Cooke, Ipswich,
(House prices are sliding as a result of the difficulty in obtaining mortgages). I disagree; mortgages with traditional limits are still plentiful
This is vested interest minority spin, aimed at pressurising the government to make borrowing cheaper in a deluded hope of reigniting the housing boom
A Hariis, Kettering, UK
The main danger we face is inflation -low interest rates will increase this risk. If petrol and food prices keep rising, fuel protests could come back and perhaps even food protests, which would almost certainly lead to riots. We need to keep Sterling strong to protect the UK from this.
Mike Livingstone, Reigate, UK
Anne, I am am an compulsive reader of the times especially the Bricks And Mortar insert, to my surprise I can not remember you ever doing a feature on my local town of Yarm ( VOTED THE BEST HIGH ST 2007 BY THE BBC ) with a host of exclusive shops, fine eateries and many a celebrity socialising
Dee Wright, Yarm, North Yorks
I might buy something at today's prices if my salary happens to triple.
Then again, losing £1820 a month in interest payments and capital loss from the projected Halifax and Nationwide figures, from the peak on a depreciating average house is a fairly sobering sum.
Glad I'm not in property.
Matt Brook, Dorchester, Dorset
Prices are going to fall about 50% over the next few years based on affordability and other inflation. If you look around you food, metals and fuels are rising fast in price. The only way to counter this is a strong pound and higher interest rates. Some of us want to have families too at some point.
Gavin, London,
It is not the scarcity of finance that is the problem, it is high house prices.
Once and for all, please explain why high house prices are a good thing ?
So the problem is that the bank does not want to borrow to people so that they can buy something that is overpriced? Utter madness.
Andrew, London,