Casa Blog – UK Property Search

Confidence in the UK housing market has fallen to its lowest since records began in 1978, according to the latest report from the Royal Institution of Chartered Surveyors (RICS).

The latest RICS UK Housing Market Survey, published today, shows that 78.5% more surveyors reported a fall than a rise in house prices in the three months to March.

The average of reported falls has increased for eight months, said the Royal Institution of Chartered Surveyors.

The group said the regional picture was “even more depressed”.

In the East Midlands the figure was 89% and in East Anglia it was 86%.

Prices fell faster in all regions of England and Wales, except Yorkshire and Humberside.

Scotland is the only area of the UK where prices are climbing.

Jeremy Leaf, RICS spokesman, said the that price falls are being driven by the inability of many to secure finance rather than an influx of supply into the market.

“Sentiment is at a very low ebb and will continue to remain depressed while the economy suffers from this unique liquidity blight.

“The slowdown in prices is directly attributable to a lack of available finance [for mortgages] which has hit demand; however, until new supply increases dramatically a significant crash remains unlikely.”

The number of new buyer enquiries declined for the sixteenth month in a row - at the fastest pace since March 2003 – with some 49% more surveyors reporting a fall than a rise, against 39% in January.

The number of agreed sales in the UK market also fell by 20% during the month.

On the supply side of the market, new instructions to sell property fell at the fastest pace since last September, providing little evidence of forced selling to date.

Encouragingly, the stock of unsold property on surveyors’ books showed signs of stabilising in March, having fallen by 1.3% on the month – remaining 50% up on annual terms.

Price expectations are now at the lowest level since October 1998.

The situation could weaken further in the near future, according to RICS, but may prove beneficial to first-time buyers and other groups presently excluded from the market.

‘The next six months will be a crucial period for homeowners but would-be buyers with larger deposits may see this market as an opportunity to acquire property in areas to which they could not previously aspire as recently as the end of 2007,’ said Mr Leaf.

UK interest rates have been cut to 5% from 5.25% by the Bank of England, balancing the risks of rising inflation and slowing growth amid the credit crisis.

It is the central bank’s third cut in interest rates since early December.

The Bank of England said in a statement: “The disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target.

“In the committee’s judgement, the balance of these risks to the inflation outlook in the medium term justifies a cut in bank rate this month.

“Credit conditions have tightened and the availability of credit appears to be worsening.”

The 25 basis point reduction in the Bank base rate was widely expected, however commentators warned that new borrowers are unlikely to see much benefit as the London Interbank Offered Rate (Libor) - the rate that banks lend to each other - continues to trade sharply above the BOE’s base rate.

Nevertheless, lenders including HBOS, Barclays, Lloyds TSB and the Nationwide building society said they would move standard variable lending rates to match the cut. That will save a borrower with a 25-year, £150,000 repayment mortgage about £23 a month, according to the Council of Mortgage Lenders.

Analysts and investors welcomed the BOE decision, but there were doubts on whether it would make any significant difference to the economy.

“This is good news for those borrowers with mortgages tracking the Bank base rate. But in these dysfunctional market conditions, the base rate is not in itself a good guide to the cost or availability of funds to lenders,” said CML director general, Michael Coogan.

“To improve the market in which lenders are operating and restore consumer confidence, the Bank needs to coordinate successive base rate cuts with further injections of more widely available liquidity.”

These sentiments were echoed by the Royal Institution of Chartered Surveyors (Rics), which argues the bank must do more.

“The easing of rates to date has not been feeding into the high street and has offered little assistance in combating the credit crunch, hence the need for the Bank of England to take action despite some data suggesting a degree of resistance in the economy,” said Rics chief economist, Simon Rubinsohn.

Further cuts are, however, expected.

“We expect the Bank of England to continue to enact gradual, but steady interest rates cuts,” said Howard Archer, economist with Global Insight.

“We forecast the next 25 basis point cut to 4.75 per cent to occur in June or July, and anticipate that interest rates will fall to 4.25 per cent by the end of 2008 and to four per cent in the first quarter of 2009 as extended below-trend growth increasingly undermines companies’ pricing power and limits wage growth.”

House prices fell by 2.5% in March, the biggest monthly decline since the recession of the early 1990s, much more than many analysts had forecast, the Halifax has said.

Analysts had forecast a monthly fall of just 0.4% and an annual three-month gain of 2.3%.

Nationally, house prices are now just 1.1% higher than they were a year ago and prices have fallen 1% in the first quarter of 2008.

Martin Ellis, Halifax chief economist, said: “This fall is continuing the pattern whereby the market is readjusting.  Sellers are having to adjust the price they ask for their properties.”

But he said the group still expected there to be only a modest (low single digit) decline in UK house prices this year because of the shortage of new houses, a strong labour market and low interest rates.

Mr Ellis added the recent drops needed to be viewed in the context of the significant price rises over recent years.

“UK prices have increased by 171% over the past ten years and by 51% over the last five years.  The average UK price has risen by £120,860 during the past decade from £70,696 to £191,556.”

Regionally, there was a mixed picture, with the biggest house price rises in Greater London (1.6%), East Anglia (1.4%) and the East Midlands (2.2%).  However, prices also fell in a number of regions, the largest being the West Midlands (down 5%) and Wales (down 4.7%).  Also in the minus column were the South West (-2.6%), Northern Ireland (-1.5%), Yorkshire & the Humber (-0.5%) and the North West (-0.5%).

The data from the Halifax follows the Nationwide reporting that house prices had fallen for five months in a row.  Latest figures from the Bank of England show that mortgage approvals edged down to 73,000 in February from 74,000 in January.  This was the second lowest level since current records began in 1999.

Analysts said that the weaker-than-expected data from the Halifax would raise expectations that the Bank of England would cut interest rates by at least 0.25% to 5% on Thursday.

However, because the lack of liquidity in money markets is making it more expensive for banks to borrow, a rate cut would not necessarily be passed on to mortgage holders, observers say.

“The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity in the market,” said Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors (Rics).

“Loan-to-value (LTV) ratios are being lowered at the same point as borrowing rates are being raised, putting increasing pressure on first-time buyers who are having to find ever larger deposits,” he added.

House prices in England and Wales remained unchanged in February, although the annual rate of growth continued to fall, according to the latest monthly figures from the Land Registry.

The government body’s house price index, which releases figures one month in arrears, showed the average price of a home remained flat at £185,616.

But there were signs of continued weakness in the housing market, as the rate of year-on-year price growth dropped for the sixth month running to 5.3% – down from 6.4% in January.

London showed its first monthly dip for some time with prices down 0.4%, leaving the average price for a house in the capital at £353,760.  Despite this, London still claims the biggest annual rise, with average growth over the year remaining higher than any other region at 10.6%.

The biggest fall in prices was in Wales, where the average cost of a home dropped by 1.1% to £140,031.

Only three regions - the East Midlands, the West Midlands and Yorkshire - saw prices rise in February.

Land Registry figures for the number of sales during the fourth quarter of 2007 also confirmed the sharp slump in the market already reported by lenders and estate agents.

Between September and December, transactions averaged 90,880 a month, down 22.5% from 117,301 in the same period of the previous year.

The number of properties sold in England and Wales for more than £1m also dropped, falling by 30% to 381.  In London the number decreased by 34% to 215.

House prices were unchanged in January compared to the previous month, according to the Halifax House Price Survey.

Over the last quarter prices have fallen by 1% – suggesting prices are moderating, but not crashing as many had feared.

According to the research annual house price inflation now stands at 4.5% – down from 5.2% in December and 6.2% in November.

The average price of a home in the UK has increased by £7,628 over the past year, and now stands at £197,244.

The figures are the latest to highlight a slowing in UK house price growth, with Bank of England figures from last week showing that the number of mortgages approved for people buying a house fell by 35% during the final quarter of 2007, compared with a year earlier.

Halifax chief economist Martin Ellis remained upbeat however. “We expect sound economic fundamentals and lower interest rates to support house prices. Nationally, we predict that house prices will be flat in 2008.”

“The UK economy recorded its 62nd successive quarter of growth in 2007 quarter four, extending the longest running period of unbroken growth on record.

“The economy is expected to continue expanding during 2008, albeit at a slower pace than in the past two years.”

On the likelihood of Bank of England rate cuts Mr Ellis said: “There will certainly be one this week and we expect another one, possibly more depending on the state of the economy.”

House prices fell for the third month in a row during January, according to the latest survey from the Nationwide.

The building society said prices dipped 0.1% during the month, taking the average cost of a home to £180,473.

The annual rate of price growth dropped to 4.2%, which is the lowest rate since December 2005.

Meanwhile, on the three month on three month measure - seen as a more reliable indicator of the health of the market - prices had declined 0.3%.

The group’s figures come during a week that has seen a host of gloomy data reported on the housing market.

The Bank of England on Wednesday, said the number of mortgages approved for people buying a home fell to its lowest level since July 1995 during December at only 73,000.

The figure, which was 10% down on November’s approvals and below analysts’ expectations, suggests that the current slowdown could pick up pace as mortgage approvals take some time to work through into house price changes.

Earlier this week the Land Registry said house prices in England and Wales fell by 0.4% during December, the first drop it has recorded since August 2005, while the Financial Services Authority (FSA) said more than one million mortgages are a “cause for concern” because of their riskier lending characteristics.

There is now little doubt that the housing market is slowing down, with all the major indexes reporting price falls on a monthly basis as stretched affordability and tighter lending criteria from mortgage lenders deter potential buyers.

Martin Gahbauer, Nationwide’s senior economist, said: “The weakening trend in house prices during the last three months is consistent with the loosening in housing market conditions that has become increasingly evident in the data.”

“Key indicators such as mortgage approvals and the sales-to-stock ratio have now fallen close to or even below the troughs reached in late 2004, a period that was followed by a year of very subdued price growth. This undoubtedly signals a continued cooling in annual house price inflation during the months ahead.”

House prices declined for a fourth month in January according to the latest survey from Hometrack, the housing market research company.

The average cost of a home in England and Wales fell by 0.3%, the same rate as in December, to £174,700.

The annual rate of growth also continued to fall, easing to just 2.3% in January, down from 3.6% in December and the lowest level since June 2006.

Meanwhile, the number of new buyers registering with estate agents continued to fall, dropping by 11.5% during the month, following falls of 7.9% and 9.1% in December and November respectively.

There was also a shortage of homes coming on to the market, with 4.6% fewer properties put up for sale than during the previous month, causing levels to be 10% lower than six months ago.

Unsurprisingly, the lack of activity in the market led to an increase in the amount of time a home takes to sell to 8.5 weeks, the highest level since the survey first began in 2001, with homeowners now getting just 93.5% of their asking price, down from around 96% a year ago.

However, the extent of price falls decreased with agents reporting prices down across less than a quarter (23%) of the country, compared to 31% in December.

Richard Donnell, Hometrack’s director of research, said: “Weak confidence among would-be purchasers continues to put downward pressure on house prices although the scale of the recent falls is relatively small when put in the context of gains over the last few years.

“Underlying prices are still being supported by a continued tightening in the supply of homes for sale, a trend that is likely to continue. The short term outlook for market activity hinges as much around the outlook for UK interest rates as it does the outlook for financial markets.”

The group said people’s unwillingness to either buy or sell property meant there was likely to be a continued lack of homes coming on to the market, which would support prices in the short-term.

But it said the turmoil in world equity markets during the past week will have done little to encourage market activity. Despite the rate cut last December the latest comments by the Governor of the Bank of England Mervyn King may place a question mark in people’s minds as to the timing of any future cut in interest rates.

With no immediate improvement expected on the demand side, there is likely to be a continued downward pressure on prices which were down across all regions over January - London and the South West recording the largest falls (both -0.4%).

“With most buyers also being sellers, households are now waiting until there are signs of general stability before committing to the market. Wait and see is likely to remain the default position of most homeowners unless they need to move, for the brave hearted there could be some deals to be done if the seller needs to sell or is realistic on the achievable price,” says Donnell.

Britons spend more than twice as much of their weekly budget on housing as they did 50 years ago but only half as much on food, official statistics show.

Mortgage interest payments or rent accounted for 19% of spending in 2006, up from 9% in 1957, according to the Office for National Statistics (ONS) based on a survey of nearly 7,000 households in 2006.

Using a slightly broader measure of housing costs, which includes mortgage interest payments, rent, various charges and maintenance, UK households spent an average of £143 a week on housing-related costs in 2006, out of an average weekly expenditure of £456.

Meanwhile spending on food and non-alcoholic drink fell from a third of the average weekly budget to 15%.

Greater disposable income means leisure goods and services now account for 19% of weekly spending compared to 9% in 1957.

“Expenditure on leisure remained fairly stable until 1977. From 1977 until 2006 the expenditure has increased at a greater rate than in the 20 years between 1957 and 1977,” the ONS Family Spending 2007 report says.

Other highlights from the 50th anniversary edition of Family Spending show that since 1957 the proportion of the average weekly household budget spent on fuel and power has halved, from 6% to 3%.

Spending on clothing and footwear has also halved (from 10% to 5%). Expenditure on tobacco has fallen from 6%, to just 1% while spending on alcoholic drink is unchanged at 3%. Motoring and travel costs have risen from 8% to 16%.

The survey - now known as the Expenditure and Food Survey - gathers information on household income and spending on goods and services, ranging from food and housing to transport and leisure. It is a key source of data for the Retail Price Index and is also widely used by business and academia.

Property asking prices fell again in January, according to the latest survey from Rightmove, making it the third consecutive monthly decline.

Asking prices were down 0.8% in the five weeks to 12 January but the fall was less than the 3.2% slide seen between November and December.

Annual house price inflation stood at 3.4% in January, its lowest rate since December 2005.

Rightmove said the average asking price for a home now stands at £230,428.

Despite the recent falls, Rightmove says there are signs of price stabilisation, given much of the fall can be explained by the rush of smaller properties to the market in mid December ahead of the HIPs deadline and a customary seasonal slowdown in the market.

Hips were launched on August 1 to include properties with 4-bedrooms or more and rolled-out to include 3-bedroom properties on September 10. They were then extended to included all properties on December 14.

“New listings are very low at this time of year, so the artificial wave of ‘low-end sellers’ has really distorted the average prices of new properties coming onto the market,” said Miles Shipside, commercial director of RightMove.

The company added that there had been a “marked increase” in activity and prices immediately after the new year as a result of lower prices and falling interest rates.

Mr Shipside said: “Some homebuyers are now able to find properties that have fallen into their affordability zone, and are bagging what they see as bargains against previous prices.

“Some properties have had their prices dropped by 10 per cent or more and are now within reach, satisfying some of the pent-up demand from previous disenfranchised buyers.”

Meanwhile, time on the market peaked at a record high of 98 days in December, but has declined to 95 days in the first weeks of January. The previous high was 93 days in January 2006.