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Housing market downturn fires property slump fears
Jonathan Prynn, Consumer Business Editor2 Sep 2010
Fears of an autumn property slump rose today when Nationwide building society said that a downturn in the British housing market gathered pace over the summer.
The average value of a home in the UK dipped 0.9% in August, compared with 0.5% in July and flat prices in June. according to the building society.
It now stands at £166,507, just 3.9% higher than a year ago with the three month on three month measure now showing zero growth.
The summer falls have brought a juddering end to a remarkable property market bounce that started in spring 2009 when interest rates hit an all time low of just 0.5%.
The Nationwide figures, the latest in a series of surveys pointing to a falling market, also raised concerns that prices will continue heading south as the Government spending cuts start to bite.
One City analyst forecast falls of up to 5% in the second half of this year and a further 5% in 2011.
Martin Gahbauer, chief economist at Nationwide, predicted that the autumn would see a full-scale “buyer's market” as a flood of properties went on sale in order to take advantage of a recent surge in values.
He said: “As more sellers have returned to the market, buyers have a greater selection of properties to chose from and more bargaining power with which to bid down asking prices.”
However, Gahbauer said that the declines in property values would be modest as the level of repossessions and serious mortgage arrears has been lower than expected, thereby limiting the number of “distressed sellers”.
However, Howard Archer, chief UK economist at forecasters IHS Global Insight, said: “It is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people's pockets and lead to serious job losses in the public sector.
“Consequently, a further drop of around 5% in house prices looks highly possible in 2011, and the drop could well be steeper still.
“Much will depend on mortgage availability and the amount of houses coming onto the market as well as how well the economy holds up.
“Therefore, we suspect that house prices will be at least 10% lower by the end of 2011 compared with their mid-2010 levels,” he said.
But there were hopes that London will be cushioned from the downturn as demand from property in the capital remains strong.
The latest Knight Frank Prime Central London Index shows that prices of luxury homes in the capital fell by just 0.1% in August, compared with 0.5% in July.
The biggest reversals are being seen among properties in the £1 million to £5 million range.
Liam Bailey, head of residential research at Knight Frank, said: “The London economy is outperforming the UK average by some margin with strong employment data showing job vacancies in the City and Canary Wharf markets up by 71% in July.”
Reader views (18)
As a mortgage broker, the cost of borrowing is at its lowest in 50 years, and the ones buying are the ones on tracker rates porting mortgages across at a corrowing rate of 1-1.5% - with 30-50% deposits. Im doing a case now, client borrows £966,000 @ BBR + 0.25% = £576.25 pcm on interest only - hes buying a 6 bed/4 bath house and remortgaeging his own house and letting it out. And hes on £180k basic with £330k bonus last year - he's not complaining, and neither am I.
- Ancient Wisdom, London, England, 08/09/2010 06:59
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"I'm not so sure property ownership is a right".
That's not what Thatcher said, when she brought in "right to buy". Remember, that ideal which lives on in Tory policy and still applies to many council tenants and housing association tenants? Well it fuelled the massive inflation that has divided the country.
When the Tories say "We're all in it together", they are lying - some have a huge stake and others have nothing of substance.
We are NOT in it together. We are battling to preserve a have and have not society. Not smart.
If you think our overstuffed prisons are full of property "millionaires" (Ha ha) think again. We are building one hell of a high bonfire and now all we need is some matches and a few vanities to burn.
Whether property ownership is a right is irrelevant. Having a HOME is a right and when the inevitable reform of the land banks arrives and rebalances the worth of said commodity, we'll seea lot of social ills recede for good.
Who wants to own a house in a country where people will kill you for a £40 fix?
- Simon, London, UK, 02/09/2010 20:50
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I lived in Germany for 15 years,rented for 12 of them,the rent was equal to a fifth of my income,and it was a three bedroom apartment over 120sq meters.I then bought a house for the equivilent of £175.000,Brand new,three floors,180 sq meters,huge garden,that was in 1995.The house today is worth £185.000.If I had bought a house in the UK in 95 for £175K I could retire today.
In the UK buying a house is a business,you buy, you wait until it has increased in value,you sell,you buy a larger house,etc etc.....In Germany you buy a house to live in for most of you life.....Greed......and you pay the price for it.........There is a very serious problem with our housing market,and only a radical re think will help.
- ray, London, 02/09/2010 17:51
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Scotty, the only thing that will fall in real terms are prices, since 2007 prices are down atleast in N London where I am. So 3 years already, and the housing market is still a mess.
- Mike, London, 02/09/2010 16:52
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Sir,
There was a time when the media complained that house prices were too high and gave sympathy to the married young and others who could not get their foot or feet on the property ladder. What happened to that sympathy or was it media hype?
- Arthur Lincoln, Roeselare, Belgium, 02/09/2010 16:16
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Red Square,
I think you might need to look at the multiplier effect to see just how much of a fall might be required to meet your calculations. 180K to 120K will require a lot more than a few defaults; go check the numbers from 1990/91 - it just ain't going to happen. if there were an economic calamity of that scale (unimaginable) then incomes would fall similarly, and real terms would be maintained.
to be perfectly honest, I am not sure property ownership is a right.
- scotty, london, 02/09/2010 16:02
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The Buy to Let Brigrade
Buying houses like lemonade
Snouts in the trough
Making money whilst people have it tough
House prices and you talking it up
Noone else gives a toss and weve had enough
People like me who are looking at tents
Saving pennies each month due to the high rent
BTL Brigade you are benter than bent
The government and bank must have been your best friend
Now I'll go now my rant has been spent
But remember Duke of Westminster you Fing aint
- BTL Piggy Rapper, London, 02/09/2010 15:30
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@scotty - thats easy WHEN rates rise (its not an if) the people who are stretched beyond their means, and beleive me I know quite a few, will loose their houses, and prices will inevitably fall as banks simply wont lend ridiculous sums. The fall in prices will mean the deposit required is lower, and even though the interest rate may be higher if the price of the house is significantly lower I wouldn't have a problem with repayments. However as it currently is the average value of a 2 bedroom flat in zone 3 where i live is £180,000 - more than 6 times my income, hence impossible repayments even at low interest, should that value fall to £120,000 or lower we are in business.
- redsquare, london, 02/09/2010 15:16
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@Andrew - Nope my opinion wouldn't change I had a house in NZ during the recession of the 90's and at one point interest rates were 17%. Before taking a mortgage you were very strongly advised that rates were likely to rise and what percentage of your income this was likely to take up, banks also refused mortgages to those they deemed unlikley to cope. Also in NZ there is no such thing as interest only mortgages, and most people pay half their monthly repayment every fortnight meaning we make 13 months of payments per year and take years off our repayment time. Unfortunately the exchange rate meant what money I got when I sold the house was virtually worthless over here, and with the cost of living in London (rent, council tax, gas and electric bills) its pretty unlikely with current prices I would ever save the 20% deposit for a 2 bedroom flat in zone 3 unless prices return to a sensible level.
- redsquare, london, 02/09/2010 14:42
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seems some people need help reading the detail of the article, maybe I can help:
"The average value of a home in the UK ... It now stands at £166,507, just 3.9% higher than a year ago"
just a 4% upswing in 12 months, that's not bad in these conditions.
@redsquare. your comments make little sense. firstly its hard to see what basis you have for declaring interest rates "artificially" low?
secondly, if you can't afford a house now, how will you be able to if rates rise as you seem to want?
- scotty, london, 02/09/2010 14:38
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Jonathan, your article is sensational cr@p, 'fires property slump fears'. No it doesn't, report it accurately. Its idiots like you reporting incorrectly which stokes these fires. Please report it as it is.
- Matt, Ware, 02/09/2010 12:53
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I really do not see the point of these articles. As Bob says, the newspapers seem to have an insatiable appetite for talking about house prices going up or down.
Redsquare - you will have a different point of view once you are on the property market. I saved for 7 years for a deposit - get over it. And the "artifically low" interest rate are not a bad thing as it means your repayments are very small - I am sure you would not want high interest rates! You may want to do a bit more reading up about mortgages before you actually get one.
- Andrew, London, 02/09/2010 12:04
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We have to provide food and shelter for the homeless, and oppose racial discrimination and promote civil rights, while also promoting equal rights for women. We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern and less materialism in young people.
- Dave, Leeds, 02/09/2010 11:53
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Rightmove showed 4% decline in Aug alone for London which you would expect to hold up during the recession. Looks like its going to be a few years of declining prices until afforability catches up. The days of the banks giving out money no questions asked are over for good.
- mike, London, 02/09/2010 10:55
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So let me get this straight, prices have fallen for 2 consecutive months however still show an increase on this time last year? Not a lot to worry about by the sounds of things. The rate of decline or increase since around 2008 has also been pretty minimal, we're talking fractions of 1%. We've seen no crashes, at least not in London. Excuse me if I don't lose sleep over the value of my flat. Next....
- Headhunter, London, 02/09/2010 10:51
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I will only be interested when the price approximately halves so I can actually afford a one or two bedroom flat - I for one am sick of the artificially low interest rates keeping people in properties they should never have been able to get mortgages on to begin with (no deposit, over 100% of value, and more than 5x annual salary.)
The housing market won't be affordable for most of us until prices for a 2 bedroom flat are about 3x average annual income.
- redsquare, london, 02/09/2010 10:11
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I get confused by the whole host of people releasing "their" figures on how the prices are going.If you listen to many estate agents they claim that sellers are doing well however in my area there are not as many "For Sale" boards about so I guess that means something.
- Mike Melbourne, Bedford, 02/09/2010 09:28
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Why do we have this every year? House prices traditionally go up when the kids go back to school, go down again towards Christmas, pick up in around February and then go down towards the summer holidays. Yet every year since the market collapsed the newspapers have tried to turn every trough into a massive crash and every peak into a boom, please just give it a rest.
- Bob, Cheam, 02/09/2010 09:22
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