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UK house prices in grip of slump that experts expect to deepen

UK house prices in grip of slump that experts expect to deepen

By Harry Wallop, Consumer Affairs Correspondent

Last Updated: 1:21am BST 01/07/2008



Britain is in the grip of a housing slump as bad as at any stage since the 1970s, property experts warned, as data suggested that first time buyers had all but disappeared from the market.

  Mortgage lending slump sparks house price fears
Banks and building societies are unable and unwilling to lend to people looking to buy a house except at very high rates

Figures due on Tuesday from the Nationwide, the country’s biggest building society, are likely to confirm that the housing down turn has turned into a full-blown slump, with prices falling nine months in a row and with the average property price having fallen £14,200 from its peak last summer.

Economists think that the property market is now in entering a prolonged downturn that will match the slumps experienced during the 1990s and 1970s – the two major corrections since the Second World War – after data from the Bank of England showed that the number of mortgages that banks and building societies had offered to home buyers had fallen to an all-time low.

Just 42,000 loans were handed out in May – down from 58,000 in April and a massive slump of 64pc compared to this time a year ago, when 116,000 mortgages were given to home buyers. This is the lowest level recorded in any month since the Bank of England started collecting data in 1993.

Property experts think it is worse than at any time since the 1970s, or possibly earlier. Separate data from the Bank showed a £556m jump in the amount of debt on credit cards during May, with some experts worried that this is proof that consumers are turning to plastic to meet the rising cost of living.

Economists called the mortgage figures “dire”, “disturbing” and “horrible”. With banks and building societies unable and unwilling to lend to people looking to buy a house – except at very high rates and with a large deposit – it is becoming nearly impossible for first time buyers to get on the housing ladder, despite the fall in house prices.

Melanie Bien, director at mortgage broker Savills Private Finance, said: “Unless they have got a substantial deposit – of at least 10pc of the value of the property – first time buyers can’t get a mortgage.

“The only ones able to borrow money are those who have parents with lots of savings. And even when they are able to get a mortgage rates just keep on creeping up.”

The average two-year fixed rate mortgage that new customers were being offered yesterday was 7.05pc, according to MoneyFacts, the personal finance publisher. This has increased from 6.98pc in the space of just one week – adding £90 to the annual repayments on a typical sized £150,000 mortgage.

According to personal finance research house Defaqto, the average up front cost of getting on the housing ladder for the first time – including stamp duty, fees and a deposit – is £33,738, because mortgage companies are cracking down on all borrowers that do not have a long and unblemished credit history.

The sum required is 40pc higher than the national average annual salary of £23,800 and nearly 50pc higher than a year ago. Darren Cook, mortgage expert at MoneyFacts, said: “It’s nearly impossible for a standard first time buyer to get on the housing ladder.

“And if they can get a mortgage, many are quite rightly nervous of buying a property that will fall in price over the next six months. Then they’ll be in negative equity.”

Estate agents have been shocked by the speed of the housing market slump and how quickly buyers have been forced off the ladder. John Caines, an estate agent in Wales, and member of Royal Institution of Chartered Surveyors, said: “It’s just as bad as the 70s or 90s if not worse.

What is so alarming is how quickly it has gone from boom to bust. “In January we were celebrating our best year ever. In June I had to made 15pc of my staff redundant.”

Martin Seymour, an estate agent in East Sussex, and member of RICS, said: “It’s the worst I can remember it in 35 years. And in some ways it is far more worrying than the housing downturns of the 1970s and 1990s. Those were caused by high unemployment and high interest rates. This is more structural.”

So far house prices have only started to dip by a relatively small amount, with figures out showing that the average property had lost 3.2pc of its value compared to a year ago.

However, economists predict that the collapse in the mortgage market will lead to a more severe correction in house prices as the year goes on.

Howard Archer, at Global Insight, expects house prices to lose 24pc of their value compared with their August 2007 peak. This would knock nearly £50,000 off the average price, which hit £199,000 last summer, according to the Halifax.

“I am wondering if this is now a little conservative,” Mr Archer said. “If the economy starts to tank and unemployment rises sharply – and it has increased for the last four months – that would have a large knock-on effect onto the housing market, as a number of distressed sellers entering the market.”

As well as the grim mortgage figures, the Bank of England data also showed that total debt on credit cards climbed from £16.4bn in April to £17bn in March.

Pat Boyden, debt expert at accountancy firm PriceWaterhouseCoopers, said: “My concern is that people – especially those coming off fixed-rate mortgages – are being squeezed, with fuel bills, food bills increasing.

“Credit cards have been used to fund people’s lifestyles. Are they now being used to fund their every day-to-day lives?”

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