Friday, October 10, 2008
Category:
Property
In its September House Price Index, Halifax has found that house prices continued to fall.
Commenting in depth on this, Halifax reported that September saw a 1.3 percent drop in house prices, which represents the smallest monthly decrease for seven months. Secondly, during the third quarter, house prices nationally fell by 5.2 percent, which was virtually identical to the 5.1 percent decline during the previous quarter. Thirdly, in annual terms, house prices were 12.4 percent lower in September. Therefore the average UK property value is now close to what is was in January 2006 at £170,866. Furthermore, the house price to earnings ratio is improving, with the peak of 5.84 in July 2007 falling to 5.02 in July 2008. This represents the lowest level since February 2004 when it stood at 5.01. Finally, the average mortgage rate paid by all borrowers has seen a slight reduction from 5.91% in August 2007 to 5.83% in August 2008.
The demand for housing has been constrained by negative real earnings growth and high house prices relative to incomes and reduced availability of mortgages. Over the past year, average earnings have not risen sufficiently enough to mirror the increase in retail prices. In fact average earnings have only risen by 3.5% compared to a 5.0% rise in the Retail Price Index. This decline in real earnings, coinciding with substantial rises in fuel (25 percent) and food prices (13 percent), has resulted in decreased discretionary income available to households.
The consequential squeeze on incomes, along with the high average house prices in relation to earnings, has made it increasingly challenging for people to get on the property ladder. Things are made even more difficult with fewer available options for credit. The effects on the demand for housing are subsequently resulting in lower property prices and levels of activity.
Despite this decline in housing market activity, there would appear to be a glimmer of hope for stabilisation. A mortgage approval comparison between the months of July and August revealed a difference of just 1,000, with 33,000 and 32,000 respectively. However, a substantial difference between August 2007 and August 2008 can be noted, with levels of approvals at 70 percent lower during the latter. In addition, the number of completed property sales in August 2008 came in at 47 percent lower than August 2007. The amount of newly-agreed sales that had not yet completed continued to fall but the rate of decline stabilised.
In September, the annual rate of house price inflation stood at -12.4 percent. This was calculated by comparing the average price over the last three months with the same three month period the year before. This means that the average UK house price is once again very similar to that in January 2006 at £170,866.
A key measure of housing affordability, the house price to average earnings ratio, showed signs of improvement with a fall from 5.84 in July 2007 to 5.02 in July 2008. This represents the lowest level for over four and a half years when it was 5.01 in February 2004. A further improvement is expected with a long-term average of 4.0.
The average mortgage rate paid by new borrowers increased by 22 basis points, from 5.88 percent in August 2007 to 6.10 percent in August 2008. This was irrespective of a 75 basis point cut in Bank rate over the same period and reflects the considerable increase in lenders’ funding costs since the onset of the economic crisis.
However, the average mortgage rate paid by all borrowers has decreased a little throughout the same period. In August 2007 this stood at 5.91 percent but went down to 5.83 percent in August 2008 as a result of existing tracker rates benefiting from the Bank of England rate cuts.
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Homeowners that are finding their finances tight as a result of increasing food and fuel could consider taking out a secured loan to consolidate existing debts, freeing up a little more of their monthly income. A
secured loan could also be the ideal solution for those that have decided not to make that planned house move but would still like to create their perfect living space. A secured loan to make home improvements could be repaid over a term to suit the borrower from 5 to 25 years. In cases of debt consolidation, it should be remembered that repaying borrowing over a longer term may increase overall interest charges.
