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Record fall in house prices
Martin Bentham, Home Affairs Editor31.07.08
Britain's biggest building society today reported a record fall in house prices as another leading mortgage lender predicted an even bigger 20 per cent slump in values.
The bleakest news in a barrage of negative economic statistics released today came from the bank HBOS as it warned house prices would fall by a fifth by the end of next year.
The Nationwide said prices had already fallen by 8.1 per cent during the past year - the biggest annual drop in values ever recorded by the lender.
City analysts added to the woe by predicting a 30 per cent slump in house prices by 2010 as the market heads "rapidly south" and issuing a further warning of "serious downside risks" to the wider economy.
In a further sign of growing economic gloom, separate figures released today showed consumer confidence has plunged to its lowest level since records began.
The onslaught of bad news will intensify the pressure on Prime Minister Gordon Brown amid concern that the economic downturn could soon become a fullblown recession.
Today's figures will heighten those fears with Fionnuala Earley, the Nationwide's chief economist, warning that the society had now seen nine successive months of house price falls that appeared set to continue.
She said the average price of a home was £169,316 - nearly £15,000 down on a
year ago. "The latest batch of economic data has been fairly poor," she said. "The risk of an economic recession in the UK is now clearly rising."
Although, the Nationwide added, house prices remain £11,000 higher than three years ago, last month's 1.7 per cent fall in values is double the rate of decline for May and suggests the property slump is accelerating. HBOS warned of a 20 per cent fall in values through 2008 and 2009 and revealed the number of its customers in mortgage arrears has risen from 35,600 at the start of the year to 39,300.
The Bank of England said just 36,000 new home loans were arranged during June, while net mortgage lending, which strips out redemptions and repayments, fell to a near eight-year low of £3.1billion.
A report by ratings agency Standard & Poor's yesterday warned that 1.7 million homeowners could be plunged into negative equity if house prices fall by a further 17 per cent.
Reader views (23)
What makes me laugh is all the building companies rushing to defend the poor indefensible FTB. With house prices finally falling - something that should have happened either 2003 or definitely 2005 - suddenly vested interests are trying to pressurise policy makers to help FTB! For years as a potential FTB I have had to endure endless smugness of property porn stars; dinners with smug associates. The last few years have been unbearable - being given so called sage advice about getting on the property bandwagon and rubbish predictions about prices "never going down". Let me tell you now - we FTB do not need any help thank you. We are in the most powerful position than we have been for ages. We have been waiting and saving for years for this moment so don't anyone dare say poor us! If we ever needed help it was years ago....not now. We must let the market correct itself - yes it will be painful for many but I cannot believe people have become so blind. All those first time buyers out there - don't be pressurised or seduced into buying quite yet. Wait a year and exercise your power - you have been ignored for years, wait one more and suddenly you will be the powerful one dictating terms. Patience is a virtue after all.....
- Ben, London
I am only hoping Mr Bear from Morpeth is being ironic. The sad thing is even if he is; others won't be.
"How will I afford my new car and holidays without equity release? "
You don't - you spend what you have, and you save for those extras!
What is it with people expecting to have everything for nothing - it only contributes to all those elements of this lovely society which everyone moans about. We are truly becoming gross, gluttonous, arrogant and selfish.
Save your money, buy what you can afford, and stop blaming everyone else but yourself, when the consequences of your gluttony - mean you have to deal with the bad as well as the good.
Madness, absolutely madness.
- Jc, se1
NJ you must be an estate agent. Firstly what is wrong with FTBs saving a larger deposit and waiting for prices to fall. Better than being a debt slave. Secondly if our economy is so HPI an debt slave dependant there must be something wrong and we should use this correction to fix it.
- David Barker, eastbourne
House price falls are good. Because consumer spending can start to be non credit based. We spend what we earn and not borrowing from the future. If house prices are lower, mortgage prices are a lot lower. This means we can use more of our take home pay for spending. Its not just about getting on to the property ladder... its about getting on affordably. It's not that hard to save a 10% deposit, it is hard however to pay a mortgage at 60% of your take home pay.
If I get a mortgage for todays prices I am going from 15% to 60% of my take home pay that I spend on a roof over my head, now that is a big reduction in my monthly spending to help the economy.
The idea that higher prices is good for home owners doesn't hold. The only time it is of benefit is when down sizing. That is a small proportion of the population, and usually those retiring, who should have put themselves into a position of financial security anyway. Otherwise it costs more. It costs more in interest and in fees and in up sizing.
- T, Cambridge
Good. House prices need to get back to affordable values and lending back to responsible rules.
Using house values as part of the economy is unsustainable. House prices can never keep going up. There have been numerous boom and busts before, so none of this is new. It almost seems normal for the UK.
However, this bust is going to be a biggie, and last for years, so be prepared.
- Np, Cornwall, UK (Until the food runs out)
Woe is me house prices are crashing. I wanted to blow 250k on a grotty new build apartment and I can't because the price keeps falling by 5k a month. You can imagine how gutted I am.
- Paddy, London
Falling House Prices are a very good thing. When an economy is service focused, as the UK’s is, the fast circulation of cash is all important, through the shops, cafes, fitness centres etc that give a lot of employment.
For people to be forced to tie up an ever increasing amount of their wages to pay the mortgage on a small brick structure that offers nothing practically beyond shelter from the elements means there is less money to spare to purchase services.
It is much better for the economy for today’s consumption to be funded by earned income, rather than by borrowings secured on illusory house price gains that will be at a much greater cost later on when the lenders interest charges are factored onto the sum to be repaid.
Our future governments should take firm measures to quell any house price rises beyond general inflation across the nation.
- Rick, sydney australia
Nj:
" A lot of consumer spending in recent years has come from equity release, so falling prices= less spending= job losses in the service sector- not exactly good news for anyone!"
Hey, using that reasoning, how about we just hand out credit cards with a hundred grand limit to anyone who wants one? Am I an economic genius or what? In fact, now that I've thought up the idea, it would be morally wrong NOT to, given all the consumer spending that would ensue, with its consequent boost to the economy. Everyone's a winner, right?
"With mortgage lenders pulling their 100% mortgages and demanding at least 10% deposit it's harder than ever!"
Yes, for around two years. After which it will be simplicity itself for first time buyers with a moderate deposit and salary to buy a moderate property, which is exactly as it should be. Looking back, do you see the property crash of the early 90s as a terrible event in the UK's history? What do you think laid the groundwork for the economic boom of the late 90s? High land values born of poorly-regulated speculation and leverage eventually strangle economies.
- James Kilfoy, Reading, UK
NJ...
Just 10 years ago it was standard to get a maximum income multiple of 3.5 with a deposit of 10%. Even with a smoother business cycle, prudent lending should have meant a rise to a multiple of 4.5 (at most). Instead, the banks started giving silly multiples with no deposit.
The last 10 years was an unsustainable credit cycle (as is being proven with the collapse of the hocus pocus products that shockingly central banks refused to regulate because they did not understand them...one of the oddest logics possible!). Now that cycle is dead and we have returned to normal. This means we are many years away from silly multiples.
The point of the above?
There was a moronic (unsustainable) credit cycle that fed asset prices that then fed confidence and sales and the economy. As it was unsustainable, all these ideas about equity withdrawal (read as taking on more debt) being essential to our economy is nonsense.
We need a retrenchment. If one buys a house for 200k instead of 300k, that is 6k less in interest payments alone pa...why would that person then need equity withdrawal (increase their debt), when they can spend their own money!
As for BTL and pensions. Most are middle class and are lucky to be in a position to have surplus funds. They are not the poor, and are more likely to leave with decent company pensions.
FTB will fund the pensions of these people, while they pay/are paying so much for houses that they can never save for their own pensions!!
- Trevor, London
NJ, as the "guvner" of the Bank of England likes to reiterate; "House prices are a matter of opinion, debt is real". Can we seriously continue with an economy that encourages debt based spending secured by property valuations disconnected with reality. Can a poorly constructed Barrat identikit flat (built for less than £50K) really be worth £250K to £500K? Go to an auction where many have recently been repossessed and you will get your answer?
- Mark Smith, London
Nj, falling house prices are great for our generation and every generation behind us. We have been completely priced out for years. Now we have hope.
I don't care about 100% mortgages are gone, saving for a 10% deposit makes a safer housing market and I have saved hard
Roll on the crash.
- Gavin, London
Mike.
'Oh what tangled webs we weave when we practise to deceive..'
- Austin Tassletine, South West, UK
If house prices were at sensible levels and mortgages at sustainable multiples of incomes, people would have more disposable income and a better quality of life. The economy would benefit. Any attempts to blow air into the rapidly deflating bubble should be resisted.
- Mario, wakefield UK
People have been using their houses as a cash machine for years and banks have obliged them. There are so many people with interest only mortgages and no way of paying the capital back. A drop in prices is good, (unless you have taken on a large 100% mortgage in the the last couple of years) this will enable lower earnings to loan ratios (if you've got a deposit) and will mean your children may be able to afford a house.
- Antony, bedford, uk
This is painful for small BTL'ers like me. Why pay someone to stay in your flat? I'm sure that house prices will pick up soon..
- John Trollman, London
NJ, a house is not a cash machine. How long can an economy grow if all it consists of, is by people selling houses to each other? Now we're finding out, and yes it's not pretty.
- Ian M, Hull
Falling house prices - a record annual fall? I am a bit concerned that this may only be the start of a very steep slide - considering the astronomical inflation of house prices since 1997. How will I afford my new car and holidays without equity release? This is a tragedy.
- Mr. D. Bear, Morpeth
Oli, in what way are falling house prices good news? A lot of consumer spending in recent years has come from equity release, so falling prices= less spending= job losses in the service sector- not exactly good news for anyone! Oh and don't for a moment think that falling prices makes it more affordable for people to get on the property ladder for first time buyers. With mortgage lenders pulling their 100% mortgages and demanding at least 10% deposit it's harder than ever!
- Nj, London
Why is this spun as bad news? Less to pay = less debt... which solves the credit problem. This is a no brainer. If we need to inflate house prices just to expand debt burdens and keep spending, our economy is not viable at all.
- Richard, Guildford, UK
Lets have an election - see who wins and can come up with ideas to make Britain Great again and get it out of this mire. We need a government, whoever it is, with a fresh mandate.
- Simon - Bucharest, bucharest - Romania
Lets have an election - see who wins and can come up with ideas to make Britain Great again and get it out of this mire. We need a government, whoever it is, with a fresh mandate.
- Simon - Bucharest, bucharest - Romania
Finally some good news. Hooray for falling house prices.
- Oli, London
Record fall in house prices! So what, could it have something to do with record rise in house prices? House prices should have been allowed to correct 2004/5 but was something due to happen 2005?
Oh what a web we weave when we first start to deceive!
- Mike, London
