Matthew Wall, Friday July 11, 2008
House prices are falling at their fastest rate since the 1990s property crash - so does this signify that another crash is just around the corner? We examine the evidence
The bad news. Property prices fell by 2% on average last month, according to Britain's biggest mortgage lender Halifax. This is the eighth consecutive monthly fall and brings the total annual fall to 6.1% - equivalent to a £17,000 reduction in the cost of the average home since January, which now stands at £180,344.
The main reason for the fall is that the property market is stagnating, with lenders not
wanting to lend, and buyers and sellers not wanting (or not being able) to buy and sell.
First-time buyers are finding it particularly difficult to obtain loans now that banks and
building societies have tightened their lending criteria and are demanding larger deposits. The
days of 100%-plus mortgages are long gone. Lender caution has meant lending rates have increased
slightly to somewhere around 5.8%, despite the Bank of England base rate remaining at 5%.
On top of this, people who would ordinarily be moving house in better economic circumstances
are deciding to stay put and weather the storm.
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Mortgage meltdown
According to the Bank of England, UK mortgage approvals fell to 42,000 in May - nearly
two-thirds lower than a year ago and the lowest figure recorded since the Bank first compiled the
figures in 1993.
These figures are backed up by the Council of Mortgage Lenders (CML) which reports that gross
mortgage lending for house purchases was £7.7bn in April this year, down from £11bn for the same
month in 2007.
But it’s important to point out that the Bank of England figures refer only to mortgages
approved for house purchases and exclude re-mortgagers. Homeowners with significant equity in their
properties are still finding it relatively easy to switch to better deals. In fact, the CML reports
that gross mortgage lending for remortgages was £11 billion in April, up £2 billion compared to
April 2006.
