Not another article on house prices
There is no doubt that the credit crunch has squeezed most of the life out of the mortgage market, but are house prices really falling as fast as the lenders say? The answer is ‘no’, and this is because a significant minority of houses are actually bought without credit and therefore do not show up in the lenders’ surveys.
Of course, this does not help those of us who are struggling to get a mortgage, but these non-credit transactionsare quite important, because these players are still in the market and they are actually slowing the fall in house prices. An estate agent friend of mine has sold two flats in a single development on the south coast last month to people who were able to pay in full because they had inherited their parents’ homes.
But we still need urgent action to improve the availabilty of credit. Quarterly figures from the Council of Mortgage Lenders for the spring quarter show the lowest number of new loans approved since 1974. To give you an idea of the sclale of the problem, here are the loan figures for some key years, including the 1991 recession, which was the last time that house prices were falling. The figures are in thousands:
1974 – 84
1991 – 185
1997 – 288
2007 – 273
2008 – 148
It is a little known fact that 3 out of 10 adults are part of a household that owns their home outright (Source: Labour Force Survey). Leaving aside the idle rich for a moment, complete ownership is most common among retired people, but 18 per cent of employees also own their own homes outright.
There a number of reasons why some people are able buy houses without a mortgage. Of course one of them is being very rich, but there are also a large number of pensioners who are trading down to a smaller property, and, as my estate agent friend has discovered, a significant number of people with inheritances.
What difference does this make to House Prices? The Halifax House Price Index is showing a 10.9 per cent price fall over the last year in the price of mortgaged properties. In contrast, the Land Registry, which keeps a record of all completed house sales in England and Wales only shows a 2.0 per cent fall. In Scotland, the position is slightly better, with the Registers of the Scotland Executive Agency recording a fall of just 1.7 per cent.
It is still hard to see how house prices can start to recover before the economy starts to turn up, and there is more credit available but we should resist succumbing to gloom.
If you have a mortgage, hang on if you can, because the current problems won’t last too long. If you want to buy, the optimum time will probably be the second half of 2009, because in my view prices will start to rise again by 2010.