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UK Housing Market Could Be Headed for Trouble

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United Kingdom  Bank of England  UK Property Prices  Nationwide  UK Property Market Outlook 

UK Housing Market Could Be Headed for Trouble

By - Wednesday 05 September 2012

More bleak news on the UK housing markets, some of it bleak despite its positivity. Firstly, house prices have risen by more than they have for two-and-a-half-years according to Nationwide. The lender reported that prices had risen 1.3% in the month ending August, more than making up for the upwardly-revised 0.8% decline recorded in July, and leaving prices down just 0.7% on a year earlier.

That all sounds rather spiffing, especially when it is put together with lending data from the Bank of England showing that the number of mortgages and the value of those mortgages had both increased on the month in July. Great. However, when you look deeper you can see that the rise is smaller than the previous month's fall, and is barely a toilet-paper dam against the general downward picture of lending in the previous few months.

In June the total value of mortgages fell 11% to £1.6bn, much less than the rise back up to £1.9bn in July, which in itself is still among the weakest seen in the past 12 months. A similar story in the number of loans; loans increased from 83,604 in June to 88,363 in July, but this was still 9% lower than May, and the second lowest figure recorded since records began. Year on year the number of loans given was down 14% and the value of the loans was down 9%.

Other data from also shows that the number of loans available for borrowers with only a 10% deposit or less has fallen sharply, and rates are being increased by the banks. The comparison website says that the number of 90% mortgages has dropped by a quarter in the last year, and the number of 95% loans available has fallen by 43% in the last 6 months. Overall there are 31% less products available to first-time buyers than there were last year.

With all this in mind, the rise in prices becomes more of a negative than a positive. The gap between buyers and sellers' expectations on pricing has been a constant problem in the housing market, one that we would like to see closing. Prices rising when the general picture doesn't look like it can support such growth could once again push up sellers' pricing expectations, which in itself would hurt demand, but at the same time it will reduce affordability which will further impact on demand, especially with fewer first-timer mortgages on the go. And so we watch with baited breath...

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