Mortgage drought could stunt prime property market, say agents
Prices to drop next year
A dearth of mortgage availability could stunt the housing market next year, as the world's credit market remains fragile. Lack of credit could trigger substantial falls in the property prices next year, according to agents.
A new report from Knight Frank shows the UK property is facing particularly serious problems.
The report said: "The real concern is that despite an improving economic picture, the banking system simply does not have the ability to supply the required level of credit. Added to this, credit spreads have remained extremely high, suggesting that the banks are still very nervous of the condition of UK household finances."
The UK mortgage market has shrunk by almost 40% since its 2007 peak, according to the Bank of England. This has resulted from the departure of foreign banks from the UK mortgage market as well as specialist buy-to-let lenders, although there have been a few new entrants such as the Bank of China. Coutts is among several private banks which are still providing mortgage finance.
The inability of buyers to gain mortgage approval could have the affect of bringing house prices down substantially. Prices have risen 6.4% since March this year and sale volumes have increased by 90% since the start of this year according to Knight Frank.
Estate agents call it an irrational and unsustainable bubble. Jeremy McGivern, an independent property consultant blames the house price exuberance on the sheer lack of new instructions. "The chances are this will be a false dawn with further price falls next year, unless you believe that quantitative easing has worked and job losses in the City have peaked."
Property adviser Jones Lang LaSalle said property prices would experience a W-shaped recovery, with prices dropping by 7% next year before recovering in 2012.
James Thomas, head of Jones Lang LaSalle’s residential development and investment team, said: “The unforeseen and seemingly irrational pick-up in prices has altered the outlook for UK house prices but it is likely that this recovery will prove temporary. The economic fundamentals that have supported the upturn, most notably the constrained supply of housing for sale, will be eroded as unemployment hits a peak and mortgage lending remains weak.
He added that good buying opportunities will exist for those who have access to equity or credit. Longer-term opportunities will be presented by the shortage of housing required to accommodate the predicted nine million increase in the UK population over the next 25 years. Prices could rise on average by 6% per annum once the current problems are out of the way.
del.icio.us
Digg
Newsvine
reddit
StumbleUpon