Comment: housing crunch

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Our survey today suggests that the London housing market is beset with uncertainty. The credit crunch has prompted lenders to withdraw from the market and to raise fees and charges on their remaining offerings, with an inexorable effect on would-be purchasers' buying power. It emerged this weekend that buy-to-let mortgages have virtually disappeared for novice landlords, while financing existing investment properties will become more expensive. That has meant a fall of a third in the number of properties being sold compared to last spring.

For estate agents, the sharp fall in turnover is bad news, though the lettings market remains strong. While activity has clearly fallen, however, the picture on prices is less clear, with forecasts for the fall in London prices ranging from five to 15 per cent. If further substantial falls follow in 2009, that would take most people who had bought since 2004 on a 100 per cent mortgage towards negative equity. That does not mean that borrowers will necessary default: repossessions will depend more on how many people lose their jobs in the slowdown.

Eventually, the market will unblock, albeit after prices have fallen. But banks are unlikely to respond to the Government's plea for them to be more generous towards borrowers. Big lenders will focus instead on reducing their smaller competitors' market share. Instead of hoping for better terms from the banks, the Treasury should be worrying about the erosion of competition in the home loan market.