Mortgage Lending Falls Again

Mortgage lending fell to its lowest level for over two and a half years in December.

Figures from the Council of Mortgage Lenders (CML) showed that homeowners borrowed £22.6bn in December – 25% less than in November, and 21% less than in December 2006. For the whole of 2007 mortgage lending was just short of £1bn per day at £362bn, a 5% increase on the £345bn lent in 2006.

The CML said that the credit crunch was the main cause of the fall, having lowered consumer confidence and put a limit on lenders’ funds.

Director general of the CML, Michael Coogan, said: “The credit crunch moved into its fourth month in December and continued to constrain the cost and availability of funds to lenders and, in turn, the cost and number of mortgage products available to borrowers. Looking forward, the recent decline in interbank lending rates and the prospect of further reductions in base rates in 2008 should provide some help to the market, although lending volumes are likely to remain weak for the next few months.”

The past few months have seen the credit crunch change attitudes of lenders. The Building Societies Association say its member were quick to react to the credit crunch, reining in spending and lending.

Mortgage lending by building societies was just down in 2007 at £52.1bn, compared with the £52.8bn lent in 2006. Net lending, without redemptions and repayments, fell by 21% to £12.6bn.

Andrew Montlake, of independent mortgage broker Cobalt Capital, said: “As a mortgage broker, the December lending figures hardly made me dance with joy, although I agree with the CML that the outlook is more positive. There is a very good chance of an interest rate cut in February, and at least one more during 2008, which will incentivise borrowers and restore much needed confidence. At the same time, falling Libor and Swap rates are bringing succour to the banks. We’re by no means out of the woods yet but I’m confident things will be a lot rosier by Spring.

Ten Years Of Rising House Prices

House prices have trebled in 40% of counties over the past ten years, according to figures from the Halifax, Britain’s biggest mortgage lender. The county with the biggest increase was in Northern Ireland: County Armagh, where the average cost of a home went up by 331% to £220,229 by 2007.

Property prices in Northern Ireland have soared in the last ten years thanks to a combination of a strong economy, immigration, and high demand from people buying second homes and buy-to-let property. Five of the top ten rising counties were in Northern Ireland; County Tyrone saw prices rise by 315%, and County Antrim saw a 293% rise.

Outside of Northern Ireland, Wales also fared well, with Carmarthenshire seeing a 287% rise and Anglesey seeing a 269% rise.

The only English counties to make it into the top ten were Cornwall with a 266% rise, and Devon with a 238% rise.

Halifax chief economist Martin Ellis commented: “The counties recording the best house price performance over the past ten years had mainly been outside southern England. Four of the five counties with the highest house price growth are in Northern Ireland, reflecting the strength of the housing market there over the past few years.”

In ten years all counties saw house prices at least double, and 44 of the 104 counties saw prices treble and more. Scotland had eight out of the ten lowest risers in the period.

Surrey is the county with the most expensive property, averaging £364,115, and Blaenau Gwent has the cheapest average property as £113,964 – but they rose from £36,658 in 1997.

Ten years ago no counties had average property prices of over £250,000; now 12 counties have an average higher than that.

Mr Ellis said: “There are now only 20 counties in the United Kingdom with an average house price below £150,000. Ten years ago every county was below the threshold.

House Prices To Fall By 5.5% in 2008

A study says that in 2008 Britain will experience its first annual house price fall since 1995.

The study comes from the Centre for Economics and Business Research (CEBR), forecasting that the average house price will fall from just under £200,000 by £11,000 to £188,000. However, the bad news of the 5.5% decline in 2008 will be followed by a return to rising prices in 2009.

According to the CEBR there are three factors which will mean that prices will fall.

The first factor is the credit crunch which, it says, ‘will continue to restrict mortgage approvals’.

The second is that house prices have risen so much in the last decade that they are now over-valued, and are higher than buyers can afford to pay.

Thirdly, households are struggling with home finances, in the light of rising fuel costs, food prices and mortgage increase. Inflation is high, taxes are on the increase, but wages are not rising as fast, making people reluctant to take on more debt on their home.

All these factors point to a declining housing market, but it will be held in check to some extent by a housing shortage, and the likelihood that interest rates will be lowered more than once during the year. Another factor will be immigration which will have the effect of increasing demand in some areas.

Following a 5.5% drop in house prices in 2008, the CEBR forecasts that they will rise again by 3% in 2009, and at even quicker rates in subsequent years.

Jonathan Said of the CEBR said that there was no need to overplay predictions of a house price crash.

Another study has shown house prices have fallen for the fourth month in a row. Hometrack’s latest figures show a drop 0.3% for January, with 0.4% falls in London and the South West.

Although fewer homes are being put up for sale, it is now taking an average of 8.5 weeks to find a buyer – the highest figure ever known since the survey began in 2001

Consumer Confidence Takes A Hit

Consumer confidence in the UK has fallen to its lowest level for at least four years as the economy shows signs of stalling.

The global economy, and in particular the US economy, have been seen to be struggling in recent weeks and the Federal Reserve in the US has slashed interest rates in increasingly desperate measures to try and stave off a recession.

Fears of job losses and the way consumers’ pockets have been hit in recent months with rising fuel and energy prices have led to a dent in consumer confidence, as shown by the Nationwide building society’s confidence index, which hit its lowest level since it was first started in May 2004.

The Bank of England’s Monetary Policy Committee is meeting this week, and will announce the latest interest rate on Thursday. It is thought by most experts that a cut of 0.25% is likely.

Martin Gahbayer, Nationwide’s senior economist, said: “’Sharp falls in share prices, the rising cost of essential items and a weak exchange rate have combined to negatively impact consumer sentiment.” He forecast a quarter-point rate cut, and added: “The expected cut may boost sentiment in the short term but it will be some time before consumer confidence is back to the levels reported a year ago.”

People are inevitably fearful for their jobs when the economy looks set for a downturn, especially as most people mortgage interest repayments are much higher than they were a couple of years ago. The ‘expectations’ of the survey also fell sharply.

The Bank faces a problem in that prices are rising sharply in many areas, despite the fact that consumers have finally cut back on their spend. It is not the usual supply and demand equation.

The rocketing price of oil has meant that household bills have been soaring, and people’s spending power has been cut as a result.

A quarter point cut this week is likely to be followed by more in coming months

Olivant Pulls Out Of Northern Rock Bid

Richard Branson’s Virgin consortium was left as the only alternative to the existing Northern Rock board in the bidding for the ailing bank as Olivant withdrew before the Monday evening deadline.

The Luqman Arnold Olivant bid was pulled as it said that it was unable to find a proposal that would meet its investment needs as well as the terms of the Government financing and shareholders’ interests.

With Olivant out of the picture there are only two possible rescuers left: Richard Branson’s Virgin-led consortium and the bank’s own management team. Branson’s proposal includes leaving the bank as a listed company, but rebranded as Virgin Bank.

Proposed executive chairman of Virgin Bank, Sir Brian Pitman, said: “We have made a proposal that seeks to stabilise the company and rebuild it as a trusted and thriving institution under the Virgin brand with a long-term future. The proposal is a sound public-private solution for Northern Rock that will see taxpayers’ interests protected and give existing shareholders the opportunity to invest alongside and at the same subscription price as the Virgin Consortium.”

It is confident that the proposal meets all objectives as set out by the Treasury, the Bank of England and the Financial Services Authority, including a strategy to repay in full the financial package arranged by the Treasury and the Bank. In addition the consortium is planning to put £1.25bn of new capital into the struggling bank. Existing shareholders will be offered a rights issue for 4.7 new shares for every one owned.

New equity issue would need the approval of Northern Rock shareholders. Chancellor Alistair Darling is expected to announce the bid winner after a few weeks – but by 17 March at the latest, when the Government must provide the European Commission with good reason for continuing to support the bank financially

Homes Take A Fifth Of Our Income

The cost of living in a home in Britain is higher now than at any time in the last 50 years. Mortgage payments, rents and council taxes are now taking £1 out of every £5 spent.

A study into the changing face of Britain since 1957 by the Office of National Statistics revealed the changes in Britain’s spending in half a century.  Whereas in 1957 spending tended to be on cigarettes, beer and rent, it is now more on wine rather than beer, and housing, with less spent on smoking.

Another modern spending trait is for home improvements and soft furnishings, and in 2007 the country spent £750 in every week on things for the home: sofas, carpets, garden furniture and other decorative goods.

Spending on leisure has also soared, but spending on food has dropped. Despite recent concerns over rising food prices, they have actually plummeted in real terms since 1957. Efficient farming and factory food production methods have enabled supermarkets to sell food at prices comparatively much lower than 50 years ago.

In 1957 leisure accounted for only 9% of our spending, but now it has increased to 19%, with people spending more on entertainment and going out. It was a period when rationing had only just finished and people were still living frugally.

Another area of large spending increase has been in motoring. In 1957 8% of people’s budget went on motoring; in 2007 it was 16%. This is inevitable with more car use, and people travelling further to get to work.

Spending on smoking has decreased. In 1957 it was 6.1% (87p), equating to £83.88 today. In 2007 average spending on smoking was only £4.60 a week (1%).

Spending on housing has risen from 8.1% of income (and an actual weekly figure of £1.20) to 18.9% of income (and an actual weekly figure of £85.40). Actual weekly spending has gone up from £14.30 in 1957 to £456 in 2007

A Million Families Risk Repossession

One million families are at risk of losing their home to repossession in the next year and a half, according to the Financial Services Authority (FSA).

The City financial watchdog says in its Financial Risk Outlook, that increases in mortgage repayments on top of people’s other debts will push many over the financial brink.

There are still hundreds of thousands of mortgage holders still to come off cheap fixed rates and they will find that their mortgage repayments will be much higher than they are now. The FSA is concerned that some will find that they cannot switch to an alternative cheap deal.

As lenders have tightened their lending criteria following the effects of the credit crunch, many of those coming off fixed rate deals may now be seen as a bad risk and will have to revert to the lender’s standard variable rate – much higher than cheap deals.

The FSA says that nearly one in five of those who took out mortgages between April 2005 and September 2007 could risk repossession.

The FSA has identified three key factors which could put mortgage holders at risk: having a mortgage of 90% LTV or higher; having a mortgage for a term over 25 years; borrowing over 3.5 times annual salary. The FSA estimates that there are around 150,000 who have all three of these factors who are most at risk.

That figure is much more than the 75,540 repossessions of the worst year to date, 1991. There are also another 890,000 home owners who are at risk of ‘financial difficulty’, including missing a mortgage or credit card payment.

Head of financial strategy and risk at the FSA, Lyndon Nelson, said that apart from mortgages, other debts such as personal loans, credit cards and overdrafts could tip people over the edge.

Home repossessions have already rocketed to 14,000 between January and June 2007 from just 3,700 during the same period in 2004.

A spokesman at the FSA said: “We are not saying this scenario will definitely happen but we want to raise awareness of the risks. With continuing uncertainty over the economy, it is more important than ever for people to take care of their finances. Anyone with debts, including mortgages, should take stock, review their budget and make sure that it is affordable if there is change in circumstances, such as a job loss or a rise in interest rates.

MPC Member Calls For Rate Cut

One member of the Bank of England’s Monetary Policy Committee has called for interest rates to be cut.

Professor David Blanchflower was the only member of the MPC to vote for a cut in interest rates at the January meeting, and he says that a cut is needed to prevent an economic slowdown. The other eight members of the MPC voted against a cut in the interest rate.

The primary role of the MPC is to keep inflation under control, and with inflation at 2.1% - over the 2% target – and under pressure from rising oil, food and energy prices, the vote was strongly against a rate cut in January.

Professor Blanchflower likened the concerns over inflation to ‘fiddling while Rome burns’, showing his fears for the UK economy. In essence he wished for a cut like that by the US Federal Reserve last week, which slashed interested rates by 0.75% in an attempt to calm down stock market fears of a US recession.

He urged the Governor of the Bank Mervyn King to get the Bank ‘ahead of the curve’ with so much risk to the economy, reacting with similar alacrity in the way that it did to inflationary pressures at the beginning of 2007.

“It is time for the MPC to lead, rather than follow,” he said. “Consumer confidence is low in the UK. Interest rates are restrictive at their current levels and that is why I have been voting for cuts.”

Professor Blanchflower divides his time between the UK and the US, and he believes that a recession in the US is now a matter of ‘when and for how long’, and that is a far more pressing issue in the US that its war on terror.

He added: “Britain is more dependent on the financial sector than is the case in the US. Also, the housing bubble is greater in the UK based on house price to earnings ratios.

Land Registry Sees December Fall In House Prices

Land Registry figures have shown the first monthly drop in house prices since August 2005.

The figures show that a home in England and Wales fell by 0.4% on average in December, taking the average cost of a home down to £184,469.

House prices indices such as those from Nationwide Building Society and the Halifax have shown a downward trend in recent months, but it is the first time the Land Registry has seen a fall in average house prices for two and a half years.

The December figures took annual house price inflation down 6.7% for the year by Land Registry figures. In December 2006 annual house price inflation was 7.77% and it peaked in 2007 at 9.7% in August.

All regions in England and Wales saw a fall, apart from three. London, the East and the North East all saw rises, the latter seeing a jump of 2.2%. The biggest fall in any region was in the East Midlands with a 3.3% drop; Wales saw a fall of 2.1%.

In December London prices saw a 0.6% rise, greater than the average across the country. London had a relatively high annual change of 14.3%, mainly due to very high monthly increases at the beginning of 2007. In that period London saw very high growth. In comparison the last quarter has seen growth rates at far more modest levels. London’s average house price for December 2007 still stands well above the national average, at £354,625.

In annual terms, London had the highest inflation at 14.3%, whereas the East Midlands had the lowest with a rise of just 0.5%. There are ten regions in all: North East, East, London, Yorkshire & The Humber, West Midlands, North West, South West, South East, Wales, East Midlands.

In London, the borough with the highest annual price increase in 2007 was Kensington and Chelsea, rising by 2%. The boroughs with the highest monthly price increases in December were Lewisham and Tower Hamlets, at 16%. Newham had the lowest annual growth in London of 7%

New mortgage approval reaches low point & increases pressure for interest rate cut

The number of mortgages approved last month for new homebuyers has dipped to its lowest figure in at least 8 years. This has increased speculation within the industry for a potential interest rate cut in the near future.

The Bank of England released figures showing that banks and building societies approved 73,000 loans for house purchases in December, compared to 81,000 in November and 114,000 in June. The Bank began to collate its data in this way in 1999 and this has been the lowest figure yet to be recorded since then.

The prediction for December had been an estimated 79,000, so obviously the actual figure was considerably lower.

It seems somewhat ironic that these figures have been released the day after it was announced that generally the cost of buying property has increased by351% since 1996. The initial costs of home buying have increased due to higher house prices in general and tighter conditions enforced by lenders, making substantial deposits from potential borrowers a necessity.

One of Global Insight’s chief economists believes these figures are proof positive that the housing market activity is “being substantially undermined by stretched affordability and tightening lending practises.” He believes this puts considerable pressure on the Bank of England to cut interest rates as early as next week and to consider further similar reductions.

Looking at other figures, there has been a much slower rise in consumer credit spending, including personal loans and credit cards. They only increased by £600million, which is just 0.2% rise from November and only 5.7% up on December 2006.

There was a slight increase in re-mortgages which showed 97,000 in December, compared to 96,000. This is a result of people reaching the end of their fixed-rate terms and shopping around for the latest ‘best deal’.

This year, it is expected that roughly 1.4million people will reach the end of their fixed-rate deals.

Total net lending to individuals is reported to be £9.1billion in December, compared to £9.2billion in November and the previous 6month average of £10billion.

The last word goes to Royal London Asset Management’s economist, Ian Kernohan, who concludes, ”The latest numbers indicate that the current housing slowdown is more pronounced than in 2005 and bodes ill for the next set of retail sales data.

« Previous Page — Next Page »