Fall In House Prices
Manchester bucks the nationwide downward property value trend with a slight rise in house values.
New house price survey figures published by the Halifax for March show a fall of 2.5% in values based on the national average. The last time that there was such a drop, it was September 1992, when prices plummeted by 3% in one month. However, this does not necessarily mean that a market crash similar to that experienced in the nineties is inevitable. February's figure for the UK was a drop of just 0.4%.
It should be borne in mind that the national figure can be broken down into regional values. The North West saw a 0.5% drop as did the Yorkshire and Humber region. According to the Land Registry of England and Wales, house prices in the north-west for the period October-December 2007 saw a fall of 0.8%. When the North West figures for individual property types are examined, flats and terraced houses fared better than semis and detached homes, with the former pairing showing a slight increase in their values. More recently, the average price of a house in Greater Manchester actually rose from £130,737 in January to £130,802 in February. The Halifax state that the average price of a property in the UK is £191,556.
Across the rest of the UK, the Halifax have reported a drop of 5% in the West Midlands, which is the sharpest drop in the survey, followed by Wales with a 4.7% fall. Greater London however, saw a rise in values of 1.6%.
It might be expected that applications for mortgages would rise along with a drop in house values as homes become slightly more affordable, however the credit crunch has meant that lenders are now more reluctant to agree to a mortgage. They are also demanding higher deposits than previously. The recently beleaguered Northern Rock has purposely set new mortgage rates at high levels just to dissuade any potential new customers. Internet bank First Direct, a division of HSBC, have gone as far as withholding all mortgage products until they are on top of the existing applications that are being processed. In simple terms, the effect of the credit crunch on mortgages is that building societies and banks are finding it harder to gain the finance on the money markets that they require for all the mortgages that are being applied for.
Mortgage rates have risen with some lenders and this could be a future indicator for the business as a whole. The Alliance & Leicester and Nationwide have both raised their rates twice in rapid succession, despite the Bank of England having lowered its base rate by 0.25% to 5%, a move which sees these lenders refusing to pass the savings made onto the consumer.
In its forecast for the rest of the year, the Halifax does not appear to be pessimistic and expects prices to remain relatively stable. They are keen to stress that any recent changes should be viewed against the fact that house prices have jumped by 51% during the past five years and an astonishing 171% in the last 10 years. The average home is now worth just 1.1% more than 12 months ago and prices have fallen 1% in the first quarter of this year.
Figures from the Council of Mortgage Lenders showed mortgages for home purchases fell further in February to just 49,200 compared to 50,900 in January and 73,000 in February 2007. Banks and building societies are unable to keep up with demand for mortgages as a result of the credit squeeze preventing them from obtaining funds on the money markets.
However, the figures will undoubtedly add concerns among economists that the UK property market is facing a pronounced slump. Howard Archer, chief UK economist at analysts Global Insight, said it is important not to put too much emphasis on one piece of data, and it should also be borne in mind that house prices were still only down 1% quarter-on-quarter in the first quarter of 2008, according to the Halifax. Nevertheless, the overall impression is that property prices were buckling markedly under the substantial pressure emanating from increased affordability constraints and markedly tighter lending conditions even before the latest escalation of the credit crunch, concluded Mr. Archer.