* Average asking prices fall by 2.2% (£5,102) as summer sellers price more realistically. This compares with an increase of 0.6% in July. Over the past year, asking prices have fallen by 3.1% and the average asking price is now £222,762
* Rightmove sees record traffic month as ‘marginal' buyers search hard for property that meets their restricted loan parameters and the ‘creditworthy' trawl for limited supply of quality homes
* Sentiment continues to improve as 75% of home movers don't expect prices to fall in the next 12 months
* New sellers in August 48% below pre-credit crunch numbers as tight mortgage lending criteria continues to restrict transactions and stifle property coming to market
This month's fall of 2.2% in new sellers' average asking prices comes in spite of fresh stock scarcity and record search activity on Rightmove. It re-enforces the fact that we will see a period of bumping along the bottom before we return to consistent growth in house prices.
Miles Shipside, commercial director of Rightmove comments: “After several months of activity and prices revving upwards from last winter's low point, both will start to hit the limiter without more mortgage finance. In spite of pent up demand, the market and pricing is boxed in by restrictive lending criteria put in place to ration mortgages given the lack of funds available to lenders”.
The average drop equates to £5,102. Those marketing in the summer holiday season tend to be more aggressive with their pricing as they usually have a strong reason to market when most people are contemplating their annual break from the stresses of the year. Indeed, this month's fall virtually mirrors the 2.3% drop of August last year. It fits more with a traditional seasonal pattern, rather than an early signal of a return to further falls as predicted by the proponents of a double dip scenario. Nonetheless it is still the largest fall seen this year, which had previously recorded rises in 5 out of 7 months. The annual rate of increase remains unchanged, still registering a year-on-year fall of 3.1%, tying in with our forecast that average asking prices are unlikely to see further upward movement in 2009.
Future price and transaction growth is now controlled by the bottleneck of mortgage availability. This is unlikely to change for years to come, with the Centre for Economics and Business Research (CEBR) forecasting that mortgage application levels will recover slowly and remain well below the levels seen in the early part of this decade as far ahead as 2013. Even in 2013 the CEBR state that numbers will still be 24% below 2006 levels. This may well reflect a paradigm shift in access to mortgage lending. While HSBC is the only major lender to have taken a more proactive stance and increased its market share, its reported average loan-to-value of circa 50% on new mortgage lending is a perfect illustration of the new era of both caution and cherry picking.
Shipside adds: “Lenders are looking to remove as much risk as possible from their mortgage book. While the government's left-hand is waving them on to lend to more home movers and small businesses, the right-hand is effectively flagging them down again by urging lenders to re-build balance sheets and improve capital adequacy”.
Borrowers will hope the additional funds made available for quantitative easing by the Bank of England will assist some lifting of the current mortgage cap. Ironically the batch of existing mortgage holders about to come off their 2 year fixed-rate deals, given current base rates, could see their monthly mortgage payments reduce. However, their opportunity to take a further-fixed rate is denied by house price falls reducing their equity below lender's new thresholds. Should this happen, and they are forced to revert to their current lenders' standard variable rate, they become exposed to any future inflationary pressures forcing up base rates. This is a tranche of possible involuntary future sellers should they get into financial stress, though more likely they will stay put as they are unable to borrow more from their existing or new lenders to fund a move. This will exacerbate the dearth of new sellers coming to market.
Shipside comments: “Former equity releasers or those who bought in the last few years with high loan-to-value ratios used to have the choice of a range of mortgage products, giving them the option of re-financing and possibly moving up the housing ladder. Many are now trapped on standard variable rates and are beholden to the MPC and the policies of the state backed institutions that hold many of the outstanding mortgages. With the second anniversary of the credit crunch, there is still little sign of a speedy recovery, meaning it is only the creditworthy that are insulated from the mortgage famine”.
When debating a housing market recovery there are three distinct groups to consider:
* The ‘Creditworthy', who once they have cleared the mortgage hurdles of substantial deposit, credit score and income multiples are rewarded by historically attractive interest rates. This group will be more heavily concentrated in London and the South, where the new stock shortages tend to most severe.
* The ‘Marginals', looking to borrow 75% loan-to-value and above, who have to be squeaky clean on credit history and earning ratios. Lenders now get increasingly nervous with this group as their needs rise into the 80% to 90% loan-to-value bands.
* The ‘Minimalists', an unfortunate casualty of the credit crunch. Those with more minimal means, previously welcomed and encouraged by lenders to borrow to fund house purchase, promoting unsound foundations beneath the upwards price spiral. These are now effectively excluded from the market and many may never be able to return, having long term consequences for transaction and new seller numbers.
Shipside comments: “The activity of the Marginals group is the one to watch, as they include the vital first-time buyers whose shift to creditworthy status will herald the return to greater transaction volumes and enable more sustainable house price growth. Price growth is also required to enable owner-occupier Marginals to re-build their equity and come into play as ‘trader uppers' and future sellers”.
Shipside concludes: “It is highly likely that the historic norm of new sellers coming to market is consigned to the history books. Even with a return of equity, employment and wholesale mortgage funding, these levels of sellers may never be seen again”.
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- Need for big deposit hits home sales hard (telegraph.co.uk)
- Rightmove: UK House Asking Prices Drop 0.6% m/m; +3.7% y/y (forexlive.com)