News: Weekly News Round Up - Desperate Measures Being Taken To Halt Slump

Thu, 05 Mar 09

With house prices falling, mortgage lending still being squeezed and confidence in the housing market at a record low many in the finance and property sector are resorting to desperate measures

Estate agents Savills is a case in point, claiming that all estate agents should consider a sweeping 25% cut in asking prices in order to make a sale – see Home News 2 Mar, 2009.

It has identified such a reduction as the tipping point needed to dramatically increase viewings and offers, claiming successes where its branches have brought in such cuts.

The wider estate agency sector is not so convinced, with Nigel Jones, director of  John Francis Estate Agents, telling the Western Mail that, “Savills are acting very much in the high value market where there isn’t always the need to sell, so prices aren’t always as realistic as other areas of the market.”

But according to latest figures from Land Registry and HBOS, which is now part of the Lloyds Group, such a dramatic price cut may not seem so far fetched.

House prices fell by 17.8% between February 2008 and February this year according to HBOS, which is the UK’s largest mortgage lender – see Home News 5 Mar, 2009. 

A similar fall was recorded by the Land Registry, which says that prices fell by 15.1% in England and Wales between January 2008 and the same month this year – see Home News 2 Mar, 2009.

However a closer look at the figures shows that while cuts are taking place across all regions, a dramatic cut of 25% may only be necessary in some areas.

According to the Land Registry’s figures Wales saw the sharpest annual fall of 19.7% in January, suggesting that a drop of 25% could perhaps be appropriate. 

But in regions such as the north-east of England, which saw a drop of 12.7%, a cut of 25% would indeed seem over the top.

The value of different types of property can also call into question Savills’ call for sweeping cuts. While the price of flats fell by 17.3% from January 2008 to January 2009, the price of detached homes fell by only 12.2%.

Another to take action is London mayor Boris Johnson who has come up with another alternative to help first time buyers onto the property ladder other than dramatic price cuts. He has teamed up with national housing and regeneration body the Homes and Communities Agency to launch a multi-million pound scheme to build around 3,000 affordable homes.

Also being planned is a rent discount scheme on designated ‘intermediate rent’ homes, available to first time buyers to help them save for a deposit.

Johnson said: “The money we are investing today is also a major shot in the arm for London’s development sector and the economy. As this rolls out thousands of construction sector jobs will be saved but more importantly the sector will emerge strong to build and grow London when the recovery comes.”
Bigger deposits are clearly needed to get a good mortgage deal in the current climate, according to a latest report from Moneyfacts.

This found that the number of mortgage deals in the UK market is just under 1,400, but only three of these were available to those with a 5% deposit and just 101 were available to those with a 10% deposit. Just under a third of deals required a 25% deposit and 376 needed a 40% deposit.

Latest Bank of England figures for mortgage approvals released this week show that the market has halved over the last year and the need for better deals.

The Bank of England has also taken action to help the housing market this week, with another cut in interest rates to an unprecedented level of 0.5%, as well as a promise to inject around £75bn into the economy – see Home News 5 Mar, 2009.

But while those on tracker deals will be celebrating another rate cut lenders are calling for a halt to the seemingly monthly reductions in the base rate.

In a statement the Council for Mortgage Lenders said that most borrowers are unlikely to benefit.

Retail savings are now a vital source of funding for new mortgage lending. In a sustained low interest rate environment it becomes increasingly difficult for lenders to reward existing borrowers with low mortgage rates and offer competitive savings rates to attract deposits,” the CML says.

By Joe Lepper

See also  - Mortgages, House Price Indices Asking Price Index, House Prices and Trends


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