House prices forecast to drop by 13% over next two years

[Legal Beagles]

House prices in the UK are likely to fall a further 13% over the next two years as banks and building societies continue to tighten lending conditions, according to property consultancy Hometrack.
Following an estimated drop of 9% this year, prices are forecast to fall 10% next year and 3% in 2010, the consultancy said yesterday. This would mean a peak-to-trough fall of 22% between 2007 and 2010.
Richard Donnell, Hometrack's director of research, said: "For homeowners, who tend to base price changes against what they believed they could have put their home on the market for in 2007, it will feel more like a 30% fall once asking prices are taken into account."
The group said the projected drop in house prices next year would put affordability, in terms of debt servicing costs, on a par with the lows of the early 1990s.
"The onset of recession and rising unemployment is set to act as a major constraint on demand, compounding the level of price falls in the near term. Given the rapidly changing outlook for the economy, no one can accurately predict how much property prices will fall in the short to medium term," said Donnell.
The report forecast that 3.2% of homes would change hands next year, which equates to the average household moving once every 31 years, compared with every 15 years over the last decade.
It said repossessions were likely to rise to 70,000 next year from 45,000 this year as people's borrowings "start to make it difficult for lenders to be as flexible as they would like".
Property firm Chesterton Humberts gave a much gloomier forecast for next year, saying house prices would fall by 40% peak to trough. Robert Bartlett, chief executive, said: "The market is considerably further down than the house price indices are signalling. The physical evidence, completions, indicates falls of 30%-35% to date."

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[Legal Beagles]

House prices to fall by 10% in 2009


House prices are set to fall a further 10% over the coming year, as the worsening economic climate and caution among lenders continue to dampen buyer demand, surveyors said yesterday. The warning came as figures from the British Bankers' Association showed the number of mortgages approved for purchases fell to a record low in November, despite the 1.5% cut in interest rates.
The Royal Institution of Chartered Surveyors (RICS) said there were signs that activity in the market was recovering, with enquiries from would-be buyers recovering to levels last seen in October 2006. However, it warned the key to turning those enquiries into sales would be the availability of funding, and called on the government to ensure creditworthy borrowers get access to loans.
In particular, it wants the government to implement proposals put forward by former head of Halifax Bank of Scotland Sir James Crosby, for public money to be used to guarantee mortgage-backed bonds that banks formerly used to expand lending but which have dried up since the credit crunch began.
RICS's chief economist Simon Rubinsohn said: "Lenders are likely to remain cautious in the near term in the absence of any 'guarantees' on mortgage-backed securities. This, coupled with an increasingly gloomy economic picture, suggests house prices will continue to decline in 2009."
The group also warned that the number of new homes being built was likely to keep shrinking next year. It said there were likely to have been only around 110,000 new housing developments started in 2008, a figure far lower than those recorded in the 1990s recession.
New property levels were likely to drop even more to around 80,000 next year.
BBA figures published this week showed just 17,773 mortgages were approved for homebuyers in November, down from 20,767 in October and 61% below last year's figure of 44,315.
This is the lowest level of approvals since records began in 1997, and the continued lack of demand for homes is likely to drive down house prices further in coming months. The value of home loans approved for buyers was down by almost 70% year-on-year, at £2.1bn.
It was not just a lack of numbers that pushed down the overall value of lending for house purchases - the average value of mortgages has also fallen sharply since last year as house prices have tumbled and lenders have restricted maximum loan sizes.
In November, the average loan for a house purchase was £116,700 - a drop of almost £12,000 since October and well below the average of £159,600 last June, when the market was near its peak.
There was also a steep drop in the number of borrowers remortgaging, with just 29,798 borrowers having new loans approved last month compared with 52,452 in October, the lowest number for eight years.
Customers who would usually remortgage at the end of a special offer rate may have been persuaded to stay on their lenders' standard variable rate (SVR) after the banks were pressed to pass on the base rate cut to existing borrowers.
After the 1.5 percentage-point reduction in rates, many SVRs are now more competitive than the short-term discount and fixed rates on offer to new customers.
The BBA said the shock interest rate cut to 3% had prompted November's slowdown in mortgage activity.
The BBA's statistics director, David Dooks, said the cut had "caused lenders to reassess product ranges and borrowers to reconsider future borrowing costs".
Many lenders pulled tracker mortgages early in the month as borrowers, convinced further rate cuts were on the way, scrambled for loans attached to the base rate. Those that reintroduced the loans later did so with much higher margins.
Dooks said consumers were also concerned about taking on new debts.

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[Legal Beagles]

House prices look set to continue to fall in 2009


Estate agents, house builders and analysts are unanimous – 2009 will be a grim year for the housing market.
Most pundits have come into line with predictions made by estate agency Savills in the spring that prices will continue falling throughout next year.
"The mainstream market will bottom-out at the end of 2009, or the beginning of 2010, having fallen 25% from its peak," says Savills' research chief Yolande Barnes. That means a further 10% fall in 2009, given the 15% drop recorded by many indices so far.
With prices expected to rise gently again once the bottom of the market is reached, late-2007 "peak" prices will not be regained within central London until 2013 and in the rest of the UK only in 2014, says Savills.
Similar timescales have been expressed by the Nationwide building society, Barclays and Lloyds TSB banks, and a string of estate *agencies.
A toxic cocktail of restricted mortgages, too many city-centre flats and excessive house prices ignited the meltdown in 2008. The result: a 50% drop in sales, new-home reservations down 75% in some areas, prices down 15% for second-hand properties and as much as 40% for new, while about 2,000 estate agency offices have closed.
Next year may be worse. "Rising unemployment and an increasing pipeline of repossessions will drastically alter the complexion of the market," warns Miles Shipside, commercial director of website Rightmove. He, too is predicting further falls of 10%.
According to Shipside, middle-class owners who have borrowed heavily to buy their homes will be hit hard. "The desirable property you wouldn't normally see in a 'forced-sale scenario' will be available at prices that are exceptionally attractive. Sadly, the best buys will be at the expense of personal distress," he says.
Fionnuala Earley, chief economist at the Nationwide, warns: "The labour market is weakening, which will inevitably hinder demand, particularly when property remains expensive *relative to earnings.
"With prices falling at their current rate, there's little incentive for new *borrowers to hurry into the market"
One increasingly obvious manifestation of the recession in 2009 will be the sight of newly completed homes empty, and half-built developments abandoned. Poor figures were reported by housebuilders throughout 2008.
Taylor Wimpey shed 1,900 jobs and admitted £1.9bn of debt, while Bellway sales were 50% down, despite most of its homes having discounts of as much as a quarter. Those builders have been obliged to bring the construction industry to a virtual standstill.
Richard Donnell of business consultancy Hometrack says: "There's £10bn of stock under construction and not legally complete, yet with very few buyers." Some analysts believe that could mean well over 40,000 units being built across the UK, without any guarantee of buyers in the near future.
Savills says in London alone there are 1,800 empty new homes, almost all flats. Because work is already well underway with some schemes, a further 1,400 are expected by the end of 2009 and 1,000 more a year later.
In the north of England, show-home staff from Barratt Homes will start 2009 by offering discounts of 40% off the original asking prices on some developments. Documents from *Barratt's Yorkshire East division, seen by the investment bank Dresdner Kleinwort, suggests discounts of up to 50% for bulk buyers.
Meanwhile, the government's attempts to ask and fund housing associations to buy unsold private sector homes and use them for social housing have come unstuck. Almost all of the private homes still under construction are two-bedroom flats in city centres, whereas most housing associations want three- or four-bed family units in suburbs with good shops, schools, *doctors' surgeries and parks.
"We've said no to a large number of offers and units, mostly because they were flats in the wrong place," explains Mark Powell-Davies, chief executive of Colne housing association in Essex.
Many privately built flats are not built well enough for the public sector – Colne rejected several for that reason. In addition, private flats have costly overheads such as lavish landscaping or on-site concierge services, which push up service charges. "Running costs are likely to be too high," says Geeta Nanda, head of Thames Valley Housing Association, which handles 9,000 rented and shared ownership homes.
This is a radical departure from the market of the past decade, although one relic of the old-style "Loadsamoney" property culture remains. While many estate agents at the lower end of the market have gone to the wall, the 46 partners of the top-end Knight Frank will each receive a festive season bonus of £780,000. For them, at least, it will be a happy new year.

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