UK house prices
UK house prices
Published: May 1 2009 09:42 | Last updated: May 1 2009 22:24
Spring sunshine, easy money and the lure of a “bargain” can be a dangerously seductive mix for aspiring homebuyers. Servicing an interest-only mortgage for three and a half times salary, at current rates of about 4 per cent, eats up just 14 per cent of household income compared with a long-term average of about 25 per cent. For those who believe the market may be close to bottoming out, this is enticing stuff. Buyer inquiries at estate agents are surging.
The trouble, as Capital Economics notes, is that the normally tight relationship between inquiries and new mortgage approvals has broken down over the past year, reflecting the entrenched stand-off between more risk-averse buyers and sellers holding out valiantly for 2007 valuations. Even after March’s 4 per cent rise, monthly mortgage approvals for new house purchase are still running at less than half the level traditionally deemed consistent with stable house prices.
EDITOR’S CHOICE
Manufacturing pay settlements plummet – Apr-30In depth: UK house prices – Dec-18Abbey profits leap despite rise in bad debt – Apr-29Unemployment data fuel hopes on recovery – Apr-30Hopes of UK housing recovery set back – Apr-27In depth: European house prices – Jul-21The weight of money in futures markets and spread betting sites suggests that talk of an upturn is premature. Punters have become less pessimistic lately but still expect a further 22 per cent fall in the Halifax index over the next two years, on top of the 20 per cent decline from the summer 2007 peak that has already occurred. This is broadly in line with the current 25 per cent divergence of the ratio of house prices to earnings from its long-run average of about 3.7.
With UK insolvencies and personal bankruptcies soaring, it is unlikely that rising earnings will soften the house price adjustment. Average nominal earnings growth will be about 2 per cent this year, meaning that the pain will be felt largely through falls in nominal house prices. Citi, for example, reckons nominal UK house prices will fall by a further 12.5 per cent before bottoming out in late 2010. Sellers should take what they can, now.
Category: Property News
