Casa Blog – UK Property Search

Property prices are falling to an extent not seen since the 1990s housing recession, according to a report by Royal Institution of Chartered Surveyors (RICS).

During December some 49.1% more chartered surveyors reported a fall in average house prices than the proportion reporting a rise – the gloomiest figure since November 1992.

At the same time, demand remained weak with 25% more surveyors reporting a fall in the number of people looking to buy a new house compared with those who saw an increase, while sales fell for the seventh month in a row.

The survey also showed that surveyor confidence about the outlook for sales and prices had deteriorated, with both measures at their lowest level since the questions were first included in the survey in 1998.

“The housing market is clearly feeling the pinch from the credit crunch and the round of interest rate hikes in 2007,” said RICS spokesman Ian Perry.

However he noted that while sentiment has fallen sharply, the underlying economic conditions were “vastly different” to those of the early 1990s when interest rates were in double-digits.

“Supply would have to loosen considerably before prices experience a significant dip,” he added.

The survey showed that new instructions to sell property actually rose for the first time in six months, suggesting some homeowners are keen to sell before the market worsens.

But at the same time the stock of unsold property held by surveyors increased by 7.1% following a 9.1% jump in November and a 10.3% gain in October.

RICs said the next few months would be crucial to the health of the market as potential buyers wait to see if the Bank of England will reduce rates again.

The UK property market is still cooling, according to the latest government figures (November).

Data from the Department of Communities and Local Government (DCLG) showed house prices fell by 0.8% in November, compared with a slight rise of 0.1% in October.

The annual rate of house price inflation was 9.5%, down from 11.3% the previous month.

The average figure for the three months to November, seen as a more reliable indicator, fell to 10.5% from 11.1%.

The DCLG calculated that the average price of a home in the UK was now £218,330, down from £220,195 in October.

The fall in prices between October and November can be attributed to decreases in average prices for detached houses (2.4%), bungalows (0.9%), flats (0.6%) and semi-detached houses (0.3%) only being partly offset by a small rise in the price of terraced houses (less than 0.1%).

Scotland saw an increase in house price inflation from 13.9% to 14.0%. England, Wales and Northern Ireland, though, saw decreases. In England it fell from 10.7% to 9.1%, in Wales from 9.7% to 5.9% and in Northern Ireland from 32.5% to 17.6%.

House price inflation fell in six of the English regions and rose in three - the highest inflation rate being in London (14.1%) followed by the South East (10.7%), and the East (9.4%).

Inflation rates were lower in the North East (7.6%), South West (7.2%) and the East Midlands (6.6%).

The lowest inflation rates were in the North West (5.8%), Yorkshire and the Humber (5.7%) and the West Midlands (4.3%).

The department’s figures are not seasonally adjusted, so reflect the traditional slowdown in the market in the run-up to Christmas, although most other house price indexes for November also showed a slowing market as a result of tighter credit conditions and affordability constraints.

UK house prices unexpectedly rose by 1.3% in December according to the latest house price index released by Halifax.

However, the news follows three consecutive falls during late 2007, with prices in the fourth quarter as much as 0.8% lower than the previous quarter as a result.

Annual growth slowed to 5.2% in December, down from 6.2% in November and the 11.4% recorded in August – making 2007 only the second year since 2001 when prices have risen by less than the long-term average of 8%.

According to Halifax prices increased £11,759 over the year to £197,039.

“House prices increased by 1.3% in December, reversing some of the declines recorded in the preceding three months,” said Martin Ellis, chief economist at Halifax.

“This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market.”

The longer-term slowdown can be attributed to increases in interest rates during 2006/07.

“Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity in recent months,” explained Mr Ellis.

But he added that sound economic fundamentals reinforced by high employment, a shortage of supply and falling interest rates would support house prices during 2008.

The Halifax is predicting that house prices will be flat during 2008, but added that this should be seen in the context of rises of 182% during the past 10 years.

The cost of mortgages across the UK has soared to a seven-year high with mortgage bills more than 20% higher than two years ago as the credit crunch takes its toll.

Figures from the Bank of England show that homeowners are paying an average of £135 more per month for their home loan than a year ago, prompting fears of a rise in home repossessions as people struggle to pay debts.

Prime Minister Gordon Brown said yesterday that 2008 would be a “decisive year for the economy”.

The Bank of England is under pressure to announce a further cut in interest rates for a second month running this week in a bid to reduce the cost of borrowing.

But mortgage lenders have indicated that future base rate reductions will not necessarily be automatically passed on to borrowers.

Official data shows average mortgage rates climbed from 5.94% to 6.02% between September and November last year despite the Bank’s base rate remaining the same.

David Owen, an economist at Dresdner Kleinwort, said: “This is yet more proof that the effects of the credit crunch are starting to filter through to households.

“It is particularly striking that the average mortgage rate rose to this level without a similar increase in the base rate.

“It is also fair to assume there will have been an increased number of households unable to secure credit because banks have become much more unwilling to lend.”

UK house prices fell for a second consecutive month in December, according to Britain’s largest building society, Nationwide.

Prices dropped 0.5% in December after slipping 0.8% in November, but property prices were still up 4.8% year-on-year from December 2006, it said.

The three-month on three-month rate of growth, seen by commentators as a better guide to the market than monthly figures, fell from 1.4% in November to 0.9% in December.

Nationwide had predicted a rise in prices of between 5% and 8% this year, with double digit growth in the first half of the year giving way to lower increases in later months.

Fionnuala Earley, Nationwide’s chief economist, commented: “The housing market has weakened significantly in the closing months of 2007 after holding up more strongly than expected in the earlier part of the year.”

“Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year.”

Looking at the year ahead, Ms Earley argued it was unlikely cuts in interest rates would revive the housing market back to the inflation levels seen in the first half of this year, and would not see a recovery as strong as at the end of 2005.

Providing some hope for the market, she said: “It is true that lower interest rates will probably help market activity recover somewhat later in 2008, as lower house price growth restores some affordability and allows pent-up demand from first-time buyers to be released.

However, Ms Earley warned that it seems unlikely that there will be a big recovery in activity and prices - there will be no mirroring of the 2005 experience.

This is mainly because housing affordability is starting from a much worse position than in 2005, while interest rate cuts have started from a higher and more restrictive level, she said.

Ms Earley concluded: “Therefore, this time around lower interest rates are more likely to stabilise market activity rather than re-ignite it.”

The average UK property now stands at £182,080, an increase of £8,334 over the last 12 months.

The number of first-time home buyers in the UK has fallen to the lowest level since 1980, with average homes now unaffordable in most towns, according to the Halifax, the UK’s largest mortgage lender.

Mortgage lender Halifax said around 300,000 new buyers entered the market in 2007, 15,000 less than the previous year.

It also found that the average house was now out of reach of a typical first-time buyer in 96% of UK towns.

The average income for a first-time buyer is £31,294, while the average house price for a first-time buyer increased by 15% during this year to £175,093 - 5.59 times the average salary. During the last five years the average price has also soared by 82% from just under £96,000.

Martin Ellis, the Halifax’s chief economist, said: “Rising property values have priced many potential first-time buyers out of the market. When they do enter the market, they are now more likely to be in their thirties rather than twenties and buy a flat rather than a terrace house.

“There is no quick fix to the problem. A more subdued housing market over the next few years is a positive step for potential new entrants.”

Henley-on-Thames was the UK’s least affordable town, with an average property price of £642,672 - more than 13 times the average income of first-time buyer households in the area.

Seven out of 10 of the least affordable towns are in the South East.

Bootle in Merseyside was the most affordable location with average price of £112,689 - just over three times the average household income for a local first-time buyer household.

The Royal Institution of Chartered Surveyors (RICS) said conditions for first-time buyers should begin to improve in the coming year.

“There is huge pent-up demand from first-time buyers, and should house prices drop in the early part of the year, many will be ready to pounce, especially if more repossessions filter through into the market,” said RICS chief economist, Simon Rubinsohn.

Every property sold in England and Wales will require a Home Information Pack (Hip) from today.

New regulations to extend the controversial scheme to one and two-bedroom properties were introduced at midnight, bringing an end to the three-stage introduction process.

Hips are supposed to improve the sale of homes by cutting purchasers’ costs and by giving buyers an energy rating for the property.

Critics say the packs, which cost the seller between £350 and £550 are a big extra cost on lower value homes. Sellers have been rushing to beat the deadline, with the number of smaller properties on the market rising 39%.

The Royal Institution of Chartered Surveyors (RICs) said spreading Hips to smaller properties would drive even more first-time buyers from the market.

“Our research shows they knock speculative sellers from the market,” said a RICs spokesman.

“Twenty per cent of people put their homes on the market with no initial intention of selling, but then half of them change their minds when they get a good offer.

“Hips will put an end to that and shrink the market,” he argued.

Properties with four or more bedrooms have needed a HIP since August, while those with three bedrooms were covered by the law a month later.

House prices have fallen for a fourth month in a row, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS).

Of the Chartered Surveyors questioned, 40.6% more reported a fall in prices rather than a rise in the three months to November, compared with 23.4% October.

The figures are the most negative since May 2005 when 49% more Chartered Surveyors reported a fall than a rise.

Surveyors said that a sustained weakness in demand, combined with loosening supply conditions was resulting in a greater stock of property on surveyor’s books, with stock of unsold property rising 8.7%.

RICS spokesman Jeremy Leaf commented: “It is clear that the housing market continues to feel the strain of depressed market conditions.

“The recent credit crunch continues to hit confidence in the market, with Chartered Surveyors feeling the most pessimistic about price expectations since 1998.

“However, while underlying economic fundamentals remain sound and the labour market remains strong, large falls in prices remain unlikely.

“Employment would have to fall sharply before enough supply entered the market to create a significant dip.”

The Bank of England cut interest rates for the first time in more than two years on Thursday, by quarter percentage point to 5.5%.

The decision had been almost too close to call as the Bank’s key policymakers faced the dilemma of cutting rates to buoy the faltering economy and holding rates to keep inflation in check.

Michael Coogan, Director General of the Council of Mortgage Lenders, said: “A reduction in interest rates is exactly what the market needs and will benefit consumers.

“This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year.”

Halifax and Nationwide said they would pass the 0.25 percentage point reduction on to borrowers from Jan. 1, reducing their standard variable mortgage rates to 7.5 per cent and 6.99 per cent, respectively.

That put pressure on other lenders to follow suit, and First Direct later said it also would cut its rate to 6.5 per cent with immediate effect. Other banks said their rates were “under review.”

Economists are predicting two further interest rate cuts in February and May.

House prices fell for the third consecutive month in November, dropping by 1.1%, according to latest figures from the UK’s biggest mortgage lender.

Halifax said it was the first time prices had fallen for three consecutive months since early 1995, while it was the biggest monthly drop recorded since December last year.

The average house cost £194,895 in November compared with £197,248 in October.

Martin Ellis, Halifax chief economist, said: “The housing market has slowed in recent months as the increase in interest rates between July 2006 and July 2007 has taken effect. Higher mortgage repayments and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity.”

But he added: “The UK economy is in sound shape. Strong market fundamentals, a structural housing supply shortage and pent-up demand from a large number of potential first-time buyers will support house prices, preventing a sustained and significant fall.

The figures, come as the Bank of England’s Monetary Policy Committee begins its two day meeting, raising pressure for an interest rate cut tomorrow.

But the MPC is still expected to keep interest rates on hold at 5.75 per cent due to worries about inflationary pressures.