Poor property lending figures set to impact on UK property market

Mortgage approvals for properties in the UK fell more than expected in December to their lowest since March 2009 when the country was in the middle of a recession and could drag down the real estate market, according to experts.

The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and are now running at less than half their long run average, suggesting that further house price falls may be to come.

In December, net lending shrunk by £298 million as homeowners repaid more than they borrowed, only the third time this has happened since records began in 1993. The Council of Mortgage Lenders has predicted that net lending will drop even further to £6 billion this year.

‘Even allowing for the fact that the severe weather likely hit mortgage activity in December, the Bank data point to a housing market stuck in the doldrums. We maintain that house prices will fall by around 10% from their peak 2010 levels by the end of 2011,’ said Howard Archer, chief UK economist at IHS Global Insight.

Nida Ali, economist at Ernst & Young also believes the low levels of lending will impact adversely on the property market. ‘The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011,’ said Ali.

Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors said the poor figures are a reminder of the challenges currently facing the housing market. ‘It is easy to blame poor weather, which clearly had some impact on the market. But on the other hand, the generally disappointing activity data through the latter part of 2010 is broadly consistent with the RICS Housing Market Survey’s negative picture on the number of buyer enquiries,’ he said.

‘Looking forward, some rebound in the January numbers is likely if only because of the better weather conditions. However, with lending still constrained, and mortgage rates edging up under pressure from developments in financial markets, it is hard to see mortgage approvals picking up markedly. Indeed, for the whole of 2011 we see activity in the housing market at a broadly similar level to that recorded last year,’ he added.

Courtesy : propertywire

Rise on demand for one bed rental properties in London

Rising rents are forcing many London tenants to search for smaller properties, creating fierce competition for one bedroom flats, it is claimed.

Where traditionally the majority of city workers have opted for a two bedroom property, giving them a spare bedroom or a study, property consultants Cluttons has seen a sharp rise in demand for one bedroom apartments as tenants try to keep rental costs down.

The usual cycle of workers upsizing to a larger property after a year or so has stalled, as many are deterred from moving by rising rental prices and a desire to keep their outgoings low, as concerns over job stability continue.
   This shortage of one bedroom properties has been exacerbated by the continuing difficulty in obtaining mortgage finance, which is preventing many tenants from purchasing their first home.

‘The combination of a difficult mortgage market, rising rents and general economic uncertainty has put significant pressure on the lower end of the prime London lettings market,’ said Lynn Hilton, partner for residential lettings at Cluttons.

‘Previously one bedroom properties were often seen as pied-à-terres or short term homes, but the market has shifted so that single professionals and couples, who would have previously chosen a two bed, now see the spare room as an unnecessary luxury,’ she explained.

'Young professionals arriving in London to take up positions in the City have noticeably lower budgets. They used to take two bedroom apartments at £550 per week, but now one bedroom properties costing in the region of £350 to £400 per week are in much greater demand,’ she added.

Meanwhile, the latest data from Land Registry’s flagship House Price Index shows property increased by 1.5% year on year in December which takes the average property value in England and Wales to £163,814. The monthly change from November to December was a price fall of 0.2%.

Five regions in England and Wales experienced increases in their average property values over the last 12 months. The region with the highest annual price change is London with an increase of 6.2%. London also experienced the greatest monthly rise with an increase of 1%.

The region with the greatest annual price fall is the North East, down 3.3%. The South West region experienced the most significant monthly price fall, down 1.2%.

The most up-to-date figures available show that during October 2010, the number of completed house sales in England and Wales dropped by 15% to 55,964 from 65,736 in October 2009.

The number of properties sold in England and Wales for over £1 million increased by 1% between October 2009 and October 2010, from 572 to 579.