Largest quarterly fall in Scotland for 16 years

Scottish house prices fell in the latest quarter, according to the latest Scottish House Price Monitor from Lloyds TSB Scotland.

In the three months to 31 October, the quarterly price index for the average domestic property in Scotland fell by 4% to give an average mix adjusted Scottish house price of £165,398. This is the largest quarterly fall in the 16-year history of the House Price Monitor.

On an annual basis, Scottish house prices have still risen by 4.9%, but this figure is significantly down on the 9.3% reported in the previous edition of the House Price Monitor.

The number of house purchase transactions within the Scottish House Price Monitor has fallen by 43% on the same period last year.

The market is becoming more differentiated with Glasgow reporting a quarterly rise while Edinburgh, Dundee and Aberdeen all show falls in the quarter. Outside the main cities, the South East excluding Edinburgh reports a modest quarterly rise while the other areas are all showing quarterly falls.

Turning to property types, flats continue to show the most robust performance, with a quarterly fall of 1.1% and an underlying annual increase of 4.7%. The sales of these lower priced properties continue to hold up well and offer some explanation for the quarterly rise in Glasgow prices. Prices of detached houses fell by 5.6% in the quarter while prices of semi-detached properties fell by 3.5%.

Professor Donald MacRae, chief economist, Lloyds TSB Scotland, said: “The Scottish economy is entering a significant slowdown with rising claimant unemployment and falling consumer confidence. The number of housing transactions has declined markedly since one year ago and the market is adjusting to lower prices and sales.

“Although the number of mortgage products has declined, the cost of borrowing has reduced for many mortgage holders with the latest fall in interest rates in early November. So far, the Scottish housing market is showing sensible adjustment rather than a precipitous collapse.

Halifax sees major improvement in housing affordability

House prices fell by 2.2% in October, according to the latest Halifax House Price Index.

House prices in October were 13.7% lower on an annual basis. The UK average price has returned to the level in October 2005 (£168,031).

House price to earnings ratio – a key affordability measure – is improving significantly. The house price to average earnings ratio has fallen by 16% from a peak of 5.84 in July 2007 to 4.92 in August 2008. This is the first time that the ratio has been below 5.0 for four and a half years (4.99 in February 2004). Halifax expects a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.

The UK average house price is 22% higher than five years ago. The average price stood at £138,208 in October 2003; nearly £30,000 lower than today.

Housing market activity shows signs of stabilising. The number of mortgages approved to finance house purchase was broadly unchanged in September for a third successive month, at a seasonally adjusted 33,000 compared to 32,000 in August. Approvals in 2008 Quarter 3, however, were 25% lower than in 2008 Quarter 2.

Martin Ellis, chief economist, said: “House prices declined by 2.2% in October. Housing market conditions remain challenging in the face of the significant pressures on householders’ incomes and the reduction in the availability of mortgage finance since last summer.

“But housing affordability is improving significantly. The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years. We expect a further improvement in the ratio over the coming months.”

First time buyers should ‘stay away’ from housing market

First time buyers should not even consider seeking a mortgage without putting down a 25% deposit, says Moneysupermarket.com’s mortgage expert, Louise Cuming. Despite the Chancellor asking mortgage lenders to continue providing cheap loans to households, most are still desperate to get rid of customers and consumers are faced with few choices, she adds.

Cuming says first time buyers without a substantial deposit of at least 25% should bide their time and continue saving as they will find it impossible to access competitive interest rates in the current market.

Lenders have become increasingly wary of lending large proportions of a property’s value as house price falls increase the risks of negative equity.

With house prices down around 15% over the past year any borrower who took a loan at more than 85% LTV in 2007 is likely to owe more money than their home is worth.

Cuming says existing homeowners looking to remortgage will suffer from similar problems and those with an LTV of more 75% are likely to struggle to refinance on a low rate of interest.

“Get a realistic valuation of your property, and deduct 10% from it,” she says. “If you still have a loan to value of 75% or better and you have an excellent payment record Lenders will be fighting over you.”

However, borrowers with less equity in their homes or with poor payment records may find it difficult to secure a low rate of interest, and some may be unable to remortgage at all.

Cuming says lenders are unwilling to lend to customers that aren’t virtually risk-free, and doubts the Government’s efforts to increase lending to households will change this.

“Lenders are quite happy to charge existing borrowers more, she says, “and would be delighted if those borrowers paid of their mortgages to go elsewhere.

“This is especially true if the borrower is more risky or is having trouble paying. If anything they’d like to shrink their mortgage books over the next few months, whilst they are struggling to find funding.”

Cuming believes a cut in base rate tomorrow is unlikely to lessen the cost of mortgage finance and claims only a significant reduction in inter-bank lending costs can help struggling homeowners.

Government plans meet underwhelmed response

Measures announced by the government today to help first-time buyers and those struggling to pay their mortgages have not received universal support.

The Treasury revealed that stamp duty will be suspended for a year on houses costing less than £175,000. The move, which will save eligible homebuyers up to £1,750, only applies to buildings entirely for residential use.

Hazel Blears, the communities secretary, also unveiled a three-point plan designed to help first-time buyers and those struggling to pay their mortgages facing repossession. The measures included a mortgage rescue scheme to help the most vulnerable families at risk from repossession. She also announced a shared equity scheme aimed at helping first-time buyers, called Home Buy Direct, where government and developers would offer a loan of up to 30%, as well as bringing hundreds of millions pounds forward to allow social landlords and councils to build more affordable homes.

Liberal Democrat Leader, Nick Clegg, accused the government of “bribery”. He said: “Gordon Brown has produced a plan to save his job, not help people struggling with the credit crunch.

“If the Prime Minister really wants to help people on low and middle incomes he could take the simple and obvious step of cutting their taxes, releasing billions of pounds to boost the economy.

“The Government’s response is to try to bribe people into buying houses in a falling market. The last thing vulnerable first time buyers need is Gordon Brown sucking them straight into negative equity with the housing market in free-fall.

“The Liberal Democrats have consistently called for more help for those threatened with repossession, cutting energy bills and stopping irresponsible behaviour by banks. It is a pity that Gordon Brown only wakes up to the problem when his own job is under threat.”

Ray Boulger of John Charcol said it was too little, too late. He added: “The housing market has spluttered through the last few months with indecision on whether there would be a redefining of stamp duty clearly costing the wider economy. A suspension for one year on stamp duty for properties up to £175,000 is absolutely not the answer to the problem. Yes, it will help a small minority of people, but the issue lies more with mortgage lenders and their ‘shut up shop’ attitude to lending above certain loan-to-values. The government needs to address this situation above all others.

“This move will effectively move the current starting level up by £50,000, something that should have been done years ago, and little more than that. One has to question whether the government has truly thought this through. John Charcol has calculated that a total suspension of stamp duty would only have cost the government less than £2 billion a year which we would argue is a small price to pay in order to ensure a fair playing field for all, breathing life into the market, let alone their own flagging reputation.”

The Association of Home Information Pack Providers (AHIPP) has welcomed the suspension of stamp duty on properties up to £175,000, although the amount falls short of the £200,000 that the Association suggested back in June.

AHIPP has also welcomed the announcement of Home Buy Direct that will be run with the larger property firms and also the assistance for existing home owners having problems with their mortgage payments.

Mike Ockenden, director general of AHIPP, said: “The announcement of measures to help the housing market in these difficult times provides much needed clarity for homebuyers. Whether these measures will go far enough, only time will tell and indeed AHIPP would have liked to see a higher value attached to the stamp duty suspension and for a shorter period of time. It is the case that this measure in the past has made its greatest impact towards the expiry date which means that it may well be the summer of 2009 before the full benefits kick in.”

James Hyman, partner for residential sales at Cluttons, said: “This morning’s announcement will finally resolve the stamp duty fiasco that has hovered over the housing market in recent weeks. It is a huge relief that the uncertainty surrounding stamp duty has been removed, as rumours of a total suspension of the tax had an immediate and detrimental impact on the whole market.

“However, the change in the stamp duty threshold to £175,000 offers little benefit to the majority of homebuyers, as it falls far below the average property price in most regions of the country. This proposal is woefully inadequate and the industry deserves more, given the damaging effect of the stamp duty rumour mill.

“The proposed £300 million shared equity scheme is the most positive thing to emerge from the Government’s rescue package. This could go some way to help kick-start the building trade, easing some of the financial pressure currently facing developers and giving them greater access to buyers who are struggling to enter the new homes market.”

House prices plunge 10.5%

House prices are falling at their fastest rate since 1990, when Britain was in the grip of a major economic downturn. The Nationwide’s latest house price index has shown double digit falls for the first time a year after the onset of the credit crunch.

The value of the typical British home fell 1.9% between July and August to £164,654, and has dropped by 10.5% since August 2007.

Fionnuala Earley, chief economist at Nationwide, says subdued activity for both estate agents and house builders indicates the downturn is likely to continue.

“The reported numbers of sales have not been encouraging,” she says. “The ratio of sales to stocks has been a good predictor of movement in house prices.

“Current movements suggest that the increased supply of properties on agents’ books will continue to act as a dampener to house price growth in the short term.”

Nationwide’s data also shows consumers are moving back towards fixed rate mortgages, after the proportion opting for tracker deals reached almost 35% in early 2008 before falling back to around 20% this summer.

However, Earley says the Bank of England’s latest inflation report suggests interest rates may be cut in the near future, but does not expect this to cause a major recovery for the housing market.

“There is still a great deal of uncertainty, but the Bank of England’s forecasts of growth and inflation have been widely interpreted as opening the door to rate cuts. Market rates have reacted to this and as a consequence mortgage rates, particularly fixed rates, have continued to come down.

“We expect the next move in the Bank Rate to be down, but the extent to which this will revive the mortgage and housing market is likely to be limited while overall confidence in economic and housing market conditions is low.”

Assetz expects house prices to rise in Spring 2009

The five main house price indices showed an average of -3.6% annualised growth for the 12 months prior to July 2008, according to the Assetz House Price Watch. This shows a decline in the annual rate of growth recorded last month (-2.1%).

The rate of year on year annual house price growth declined for the eleventh consecutive month in July.

Assetz is of the opinion that this is a “temporary and forced” correction in the market caused by lack of mortgage finance, rather than a crash and a general reversal in sentiment on property ownership. It expects to see house price falls slow in the autumn of 2008, with prices beginning to climb again in spring 2009. Assetz believes this will be driven by a worsening property supply situation now that property development and construction is suffering a medium-term decline.

The average house price in June 2008, taken from the average house price provided by all five major UK indices, showed a decrease of £2,923, compared with the previous month’s average value, and a fall of £8,766 over the 12months from July 2007, when the average price of a home was £213,407.

Mortgage approval based data from Halifax and Nationwide has diverged even further from whole-of-the-market land registry data from CLG and the FT Index.

This trend continues as mortgage lenders maintain relatively high mortgage rates versus Bank of England base rate and refuse to pass savings onto customers, in order to boost their profits while transaction levels fall.

Even though mortgage rates are reported to be close to those just before the credit crunch, there have been three quarter point rate drops during this period. This means the banks are charging around 0.75% more than they were a year ago, albeit with their lending costs from LIBOR being a bit higher. In addition, mortgage arrangement fees are significantly higher.

Over the last year, buyers have been haggling down the price of the home they are buying by a few per cent, in order to compensate for their increased costs, which is reflected in the noticeably lower house price figures of mortgage lenders. Now rates are similar to a year ago, it remains to be seen whether or not the increase in deposit requirements and the increase in arrangement fees continues to affect the market.

Assetz says the trend that mortgage-reliant buyers at the lower end of the market are most affected cannot be ignored, as data from Halifax and Nationwide becomes less and less representative of the housing market as a whole. Before the credit crunch the Nationwide and Halifax data reflected house price growth in a very similar way to the other indices, but their rate of decline is much steeper than the whole of market land registry based indices such as the FT index. Two months ago, this discrepancy became too much for Acadametrics who published the FT index and they too began to point out the creation of two markets: those heavily reliant on mortgages and those able to rely on substantial deposits or cash purchases. However, these mortgage application based indices do reflect the reality of the weak state of the lower end of the market and the poor finance options available.

House prices have not fallen as dramatically as many consumers believe, with the average of the indices showing that the average house price reduction has been just 3.6% year on year.

Stuart Law, chief executive of Assetz, said: “Media coverage regularly quotes the Nationwide or Halifax index alone, which are currently showing around an 8% fall in prices, with no recognition that these only represent a small part of the market that is entirely mortgage related and below the national house price average. It is clearly the bottom end of the market that is under the most pressure due to the current mortgage famine, with the top end showing great resilience. We are now witnessing a divide in the country – those who need high loan to value mortgages and those who don’t.

“We are clearly in the middle of an economic slowdown and for once the reticence of the Bank of England to make quick decisions is resulting in the correct outcome – Bank of England base rates are not being raised as a knee-jerk reaction to temporarily increasing inflation. Unfortunately this very reticence to make quick decisions has caused interest rates to be higher than they should be during this difficult period.

“We call upon the Bank to try to catch up with the leadership of the Fed in the US and drop base rates sharply for a period to nip this economic slowdown in the bud. There is clearly no pressure on wage increases at present and the Bank of England itself has confirmed that the inflationary surge due to external factors like oil is not expected to continue into 2009 and we could well find inflation below target by the end of next year.”

Housing market delay ‘spells end for Labour’

The Labour Party will suffer a landslide vote against it unless it intervenes immediately to stem sinking activity in the housing market, according to Wolsey Securities. The housebuilder finance specialist says the number of housing transactions is set to total just over 400,000 this year; 60% down on the worst year of the 90s housing market crash.

It says transaction levels are “dangerously low”, adding a number of housebuilders are on their knees and will fold unless there is an improvement.

If the Government takes action now to introduce a stamp duty holiday and implements a loan deposit scheme for first time buyers, then buyers will re-enter the market and builders recommence construction, it says.

Mike Ratcliffe, chief executive of Wolsey Securities, says: “The Government must step in and take action now.

“Waiting until the autumn, whilst the stamp duty speculation continues to rumble on, will have a devastating impact on the economy.

“If the Government fails to act, it will ultimately be responsible for its own demise. There will be a landslide vote against the Labour Party when the next General Election takes place, if they continue to lead the nation into a recession and decimate the housing industry from which so much has been expected.

“The target of 240,000 new homes per annum by 2016 is now impossible. The nation is also facing a severe housing supply crisis.”

However, Ratcliffe says there are indications the decline in the housing market is bottoming out.

“In the last few weeks there have been signs that the housing market’s deterioration was slowing with a number of key indices, including the Halifax, showing a slow down in price falls,” he says.

“Our own portfolio of over 2,500 units has also shown a slight uplift in reservations. This could well be the first indicator that we have reached the bottom of the market. With transactions at an historic low level the only way now can be up.”

Asking prices in freefall, says Rightmove

Rightmove has revealed that UK asking prices are falling faster this August than ever before.

The online estate agent says new vendors put their properties on the market for 2.3% less than the previous month.

Rightmove says the drop is the largest fall measured by its August house price index.

The news comes on the back of monthly drops of 1.2% and 1.8% in June and July respectively.

The firm says the biggest regional reversal was in London, where summer sellers have reduced asking prices by 5.3% compared to the increase of 0.3% of the previous month.

Miles Shipside, commercial director of Rightmove, says: “Sellers coming to the market in the middle of the summer holiday season tend to be more motivated.

“London, in particular, appears to be having its own special summer sale with over £21,000 off in a month.”

In spite of London’s large monthly fall prices in the capital are just 3.8% lower than last year, compared with 4.8% lower nationally.

Rightmove says the readjustment of the last three months comes as discretionary sellers choose not to enter the market, leaving a higher proportion of forced sellers who must price more aggressively.

The index also reveals the number of new listings measured this month stands at 106,000 – nearly 25% short of what Rightmove expects to see at this time of year.

Prices up but transactions down in Scotland

Scottish house prices continue to increase at a modest rate but the volumes of transactions has fallen by 27%, according to the latest Scottish House Price Monitor from Lloyds TSB Scotland.

In the three months to 31 July 2008, the quarterly price index for the average domestic property in Scotland rose by 1.6% to give an average mix adjusted Scottish house price of £172,185. On an annual basis, Scottish house prices have risen by 9.3%. Conversely, the number of house purchase transactions within the Scottish House Price Monitor has fallen by 27% since the same period last year.

Despite recording a quarterly fall of -2.8% Aberdeen is reporting a strong annual increase of +8.8% and the North excluding Aberdeen a strong +20.6% increase over the year.

Showing a second quarterly fall of -5.2%, Dundee is still in a strong position with an underlying annual increase of +9.4%. Central/Fife/Perth and Tayside remained static this quarter while reporting a robust annual rise of +9.9%.

The only cities to demonstrate an increase in their quarterly figures are Edinburgh at +1.9% and Glasgow at +0.6%. All areas in Scotland are reporting rises in their annual figures, ranging from +2.3% to +20.6%.

The price movement across Scotland is composed of price changes in different property types. In contrast to the previous quarter, flats are showing a decrease of -1.7%, and detached properties a decrease of -1.2%. Terraced properties are showing a quarterly increase of +5.5% and semi-detached properties are showing a quarterly increase of +7.2%.

Professor Donald MacRae, chief economist, Lloyds TSB Scotland, said: “The price boom of the last five years may well have passed into history but so far the effect of its demise is to slow the number of transactions rather than cause a drop in prices. The Scottish housing market is demonstrating its traditional resilience in the face of an economic downturn.”

LibDems: auction prices plummet

The average price of homes sold at auction has fallen by almost one fifth since 2007, according to the Liberal Democrats.

Calculations by Liberal Democrat Treasury Spokesperson, Lord (Matthew) Oakeshott found that the average price of residential properties sold at auction in the second quarter of 2008 was down 18.7% from the same quarter of 2007. This is an average fall of £32,000 (from £170,757 to £138,857).

Lord Oakeshott said: “Auctions are the real deal with real buyers who have to exchange contracts and pay their deposit when the hammer falls. The published house price indices are well behind the market drop.

“Deferring or suspending stamp duty with house prices in free fall would be like throwing a bucket of water at the Great Fire of London and risks sucking vulnerable first time buyers into negative equity.

“Stamp duty needs serious long-term reform, not a quick fix to save Gordon Brown’s skin.”