Insight into when the property market might change !

I have edited this from a recent article published by the BBC if you would like to read the full transcript just click here  

There is no doubt about it, house sales in the UK have been in their lowest levels since contemporary records began in the late 1970s. 

With just 869,000 homes sold in the UK last year, the figures for 2011 are bang in line with those for both 2009 and 2010. 

That means sales have been halved from the levels seen in the run up to the banking crisis, which started in 2007. 

A stand-out feature of the housing market is just how hard it is now to obtain a mortgage. Just a few years ago, lenders of all sorts seemed to be throwing money at almost anyone who cared to ask for a home loan. Loans with no deposit, or for more than the value of a property, were commonplace. Now a squeaky clean credit history for borrowers, and a very big downpayment, are necessities as lenders continue to ration their lending. 

Meanwhile the banking crisis is still rumbling on, with fears it could even intensify because of the problems of the eurozone. So it is still hard for lenders to borrow wholesale funds from other financial institutions to lend to ordinary borrowers. New banking regulations have also hindered the ability of banks and building societies to make loans without a sizeable deposit from the borrower. 

And the fall in house prices, in most parts of the UK outside London, means lenders are wary of seeing the security for their loans eroded by further falls. 

The drop in home sales has had a big ripple effect in the economy. 

House builders are desperate for more finance to become available to buyers Along with the general fall in house prices, fewer sales have inhibited people from borrowing against the rising value of their homes – in effect using them as credit cards or cash machines. Known to economists as housing equity withdrawal, this process reached a peak in 2003 when it was providing UK households with an enormous 8% boost to their average after-tax income. That ground to a halt in the middle of 2008 and shows no sign of reviving. 

Tony Key, a professor of real estate economics at the Cass Business School in London, warns we should not be taking steps to bring back the housing market of just a few years ago.”I think the idea we should be doing something to re-prime the housing market is probably misconceived,” he argues. 

“It was priming markets with over-generous credit that got us into trouble in the first place. “Deleveraging [paying off debt] takes five to 10 years to work its way through the system,” he warns.

What next? 

The Office for Budget Responsibility (OBR), the newly established scrutineer of government spending and taxation, is assuming that house sales revive this year and for the next few years as well. The government recently launched a mortgage indemnity scheme to stimulate the sales of newly built homes. 

But generally things do not look too good, even if interest rates stay at their current remarkably low levels. Unemployment is rising briskly and many economists think the country is likely to be back in formal recession sometime this year. 

Incomes will probably continue being undermined by a combination of inflation and wage freezes or wage cuts. Meanwhile mortgage lenders are facing even stiffer regulation of their lending practices by the Financial Services Authority (FSA). And who knows how the eurozone crisis will develop? 

Adrian Coles, director general of the Building Societies Association (BSA), denies the housing market has gone straight back to the 1950s, when “queuing” for a home loan from a building society was the norm and many more people rented than owned their homes. But he is in no doubt that the house buying business has changed permanently.  ”I do not think we will go back to what was regarded as normal five or 10 years ago, looking back now, I think that was abnormal, ” he says.

“This is not just a cyclical downturn where we will see a recovery in a year or two – there are some fundamental changes that have occurred. 

“We are going back to the days of responsible borrowing and responsible lending,” he adds.