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Property market faces paralysis as mortgage slump goes off the scale
Jonathan Prynn30 Jun 2008
The property market is on the brink of total paralysis with the number of mortgages approved by banks down by almost two thirds.
Only 42,000 home loans got the green light in May, down 28 per cent since April and 64 per cent lower than a year ago, according to the Bank of England.
City economists described the recordbreaking figures as "off the scale" with one forecasting they will herald a 20 per cent collapse in property prices this year.
The news comes as figures show the average price for a London house is £11,500 less than it was a year ago - with values falling the equivalent of £130 per day.
As mortgage rates continue to rise due to the credit crunch and buyers fear committing to the market, there is no end in sight to the market's "deep freeze".
Separate figures from building societies suggest that their lending has dried to the tiniest trickle.
Net mortgage lending by building societies plummeted 90 per cent to £125 million in May, the equivalent of a mere 625 typical home loans of £200,000.
Adrian Coles, director general of the Building Societies Association, said: "The lending figures ref lect the depressed state of the housing market.
With 74 per cent of respondents to the BSA's Property Price Tracker survey expecting property prices to fall over the next year, it is no surprise that demand for new mortgages remains very low.
"It is important not to read too much into one month's very low figures. However ... we expect activity to remain at low levels for some time."
The Bank's figures were much worse than most commentators were expecting, leading to a new round of even more pessimistic forecasts for the property market.
Vicky Redwood, UK economist at Capital Economics, said: "The latest news was absolutely dire ... at face value the slump in approvals is pointing to house price falls of 15 per cent to 20 per cent by the end of this year."
Nicholas Leeming, director of the website propertyfinder.com, said: "Housing transactions have seized up not because people don't want to move, but because the lenders won't play fair with mortgages."
New figures by house price monitor Hometrack show there has been an average £4,000 fall in property prices in the capital in the last month alone.
The figure, based on sales rather than asking prices, show the biggest loser in the past month was Merton, where average prices fell by £9,500, the equivalent of more than £300 a day. In Hammersmith and Fulham prices are now £8,600 lower than a month ago, and in Wandsworth they are down by £8,500. There were no price rises in any borough last month. The only areas where prices remained stable were the City and Tower Hamlets.
Year on year, prices across London have fallen by an average 3.6 per cent.
Reader views (15)
Roman from Detroit - the cap fits, and there are many living in the UK who agree with Fraser.
- Suzy, London, 01/07/2008 11:09
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They're simply falling to the prices they're actually worth. Where's the problem?
- Steve, London, 01/07/2008 11:08
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Mertons £9500 drop in a month would make me feel ill.
That's over £300 a day!
I wouldn't want to own a property, it isn't worth the worry.
Hundreds of thousands of people must be going through nervous breakdowns, apart from successfully selling their property to off shift their worries, there isn't much they can do about it.
Home ownership. You can keep it!
- David Diggins, Derby. England., 01/07/2008 11:03
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Fraser from Telford Park, grow up, and stop blaming housing issues and EVERY other problem in the world on Blair and Bush.
- Roman, Detroit, US, 30/06/2008 22:39
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None of these figures discount the thousands that home-owners spend on home improvements in order to increase the selling price. The true underlying falls are even greater once this is taken into account - if you've spent £10000 on a conservatory and you're still selling for less than you bought the house, you've suffered a much bigger loss.
- Roy, London, 30/06/2008 22:00
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City Trader - you know nothing. Presumably that's why the City has made such huge losses.
The Land Registry figures are very much a lagging indicator. The most timely and accurate numbers are those from the Nationwide and Halifax. See tomorrow and weep.
- Hotairmail, London, 30/06/2008 21:55
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The entire country faces a bursting of the house price bubble.
- George King, DUMFRIES, 30/06/2008 21:04
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Marcus,
city trader is right. Actual prices are usually lower than asking prices in a boom time as well.
Asking prices are always speculative and skewed to the highest end of possibility.
Currently, many prices are unrealistically high, in the hope that the discount will be less than the inflated premium added to offset the expected low offer.
The only thing that EVER matters is actual prices. Everything else is hot air and speculation.
- Scott, London, 30/06/2008 16:43
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No wonder Tony "Spin'll Fix-It" Blair did not rush off to become an estate agent once he stood down as Prime Minister. Even he could see the disaster that was looming on the horizon, as a result of his 10 year reign!
- Fraser, Telford Park, 30/06/2008 16:43
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There is a lag of several months between a price being agreed and it finally appearing on the land registry data after completion. Most of the completion data already published are for deals struck before this crash. Typical deals being negotiated at the moment are 10-20% down from the peak near the end of last year, so expect much bigger falls in published completion data in the coming months.
- Lark, London, 30/06/2008 13:58
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City trader... yeah...keep kidding yourself!
- Daveb, London, 30/06/2008 13:01
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City Trader is correct, asking prices are irrelevant, however, the hometrack index has left out the highest end of the London market which is still rising and concentrated on the middle to lower end which is declining to give a more realistic interpretation of what's happening. Thus his figures are enormously skewed due to his inclusion of the multi-million deals, buoying up a declining market is typical of a city analyst.
- Cilly Sunt, London, 30/06/2008 12:35
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City Trader. What nonsense. You're right, asking prices are irrelevant but when prices are LOWER than asking prices in 99% of cases then surely reality is even worse than this article suggests.
- Marcus Jones, London, 30/06/2008 12:19
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Exactly right.
- Lynchie, London, 30/06/2008 12:12
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Asking prices are irrelevant - the actual sale price is all that matters and according to the Land Registry YoY London is UP 6.9% - the biggest gains were City + Westminster up YoY 17.2%, Kensington and Chelsea 15.9%, Camden 14.1%
- City Trader, London, 30/06/2008 10:00
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