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.