Business World

2008 was a roller coaster of a year for the UK’s fortune market. Tim Jackson looks back on the ups and downs of London’s housing sector over the past year…

2008 started slowly with the hangover for the manic relate market of ‘07. By the end of 2008, the UK was in the worst housing slump since the 1930s. There are three main factors that have contributed to this heady heading spiral.

1 / Cyclical economic slowdown

After 15 years of non-stop growth, the UK brevity had overheated and house price inflation had far-outpaced rises in average earnings. The average home was costing 7 times middling earnings, which was unsustainable. A policy of low interest rates had led to the availability of cheap credit and properties had seemed affordable despite the ever-increasing prices. However, edgy of inflation running rampant, the Bank of England MPC gradually raised interest rates up to 5.75% in July 2007. This hit enthusiastically-leveraged borrowers hard, especially those on interest only mortgages and had the desired effect of substantially cooling the housing retail.

2 / Worldwide banking crisis

When Northern Rock collapsed in the summer of 2007, it wasn’t a one-off at any rate but was linked to the fallout from the sub-prime market both here and in the United States. Banks worldwide had gambled by lending to un-creditworthy customers who were left-wing unable to afford their loans and therefore defaulted on them, often literally handing back their keys to the lender. As Northern Rock had grown its organization by taking on risky debt, it soon found itself unable to secure funding to operate and the government had no choice but to bail it out. The banks then all took note of this and as a matter of fact tightened their lending criteria. In a matter of weeks, the days of 100% mortgages were gone and loan to value ratios were cut dramatically.

3 / Lending curb

This alone would be enough to cause a housing crash, but on top of this the banks stopped lending to each- other almost completely. This credit crunch attacked the entire economy from small businesses to the largest industrials and we are now seeing the rising unemployment and reduced spending that a shrinking concision causes.

The result of this unhappy alliance of bleak news is that buyers couldn’t borrow cabbage to fund their moves, vendors couldn’t afford to take lower offers on their homes as that often dragged them into negative objectivity and thousands of builders, estate agents and mortgage advisors went bust as business dried up.

The lettings furnish has been hit too as thousands of homeowners, unable to Sell House Quickly but needing to move have found themselves having to let their properties out, in effect becoming trust in landlords and massively increasing supply. The result of this is that cash for houses have been dragged down in the rental sector and many buy to let investors are conclusion that their rents no longer cover their costs and their investments are repossessed by the bank, further damaging the market.

Is there a way out of this danger?

The only route back to stability is for the banks to begin normal lending again both to each other and to home buyers. Without this the market is in for an even worse 2009. Only everything will tell.

There has been much lot and gloom about the housing market in the news but with it there are also opportunities for some buyers and sellers. Here we round up the latest news on the protection market and look at whether it is yet a time to buy.

According to the Land Registry, house prices in January were down by 15.1% since the same all at once last year. Every region in England and Wales has seen property prices fall by at least 12% in the last year. Buyers are waiting until they see that the bazaar has bottomed out, and with the waiting, house prices are expected to continue falling for the next few months. There are however signs that the freefall may be easing and presently may have reached the bottom.

For example, with prices in prime spots in London being down up to 20% compared to the March 2008 tiptop coupled with the weak pound, buyers from overseas are seeking to pick up a bargain. The window of a strong euro against the bludgeon and the security of bricks and mortar in prime location adds further appeal. Although Londoners themselves may object to property being snapped up it will be one measly prop to help stabilize house prices. Importantly, according to TimesOnline, cash sales, which are not recorded in the statistics produced by Nationwide or by Halifax, now account for a prodigious 40 per cent of transactions as buyers turn to property as a more lucrative alternative to low-paying deposit accounts.

Mortgage availability is creation to see change. In January, mortgage approvals held steady at 31,000. Although this is half of what it was last year, they have averaged 31,000 for the last six months. Mortgage lenders typically scarcity a deposit of 20% of the purchase price which is a hefty sum to secure. Saving for a deposit takes time and in this metre house prices fall. However, Northern Rock will soon begin to offer some 90% mortgages. The Bank of England is expected to reduce base rates again and is also likely to increase the amount of money in the British economy, both of which will improve the supply of funds for mortgages.

The present-day low interest rates, although will not lead to a sudden housing market revival, do make loans more affordable which will be another positive assistance for both new and existing borrowers. According to Halifax, mortgage payments have fallen from 31% of gross earnings for a new borrower in the first half of 2008 to an estimated 21% in January 2009. The residence price to average earnings ratio has decreased to an estimated 4.48 in December 2008 from a peak of 5.84 in July 2007; a succumb to of 23%. The long-term average is 4.0. Potential buyers are noticing the opportunity: according to the Queenlike Institution for Chartered Surveyors enquiries from new buyers rose in January 2009 for the third successive month.

Of passage, there continues to be pressure on incomes with rising unemployment and the negative impact of the turbulent financial markets on the availability of mortgage assets, but the update is that there are signs that the freefall on house prices and drought of mortgage availability is easing. As such, it could be wise to buy before edifice prices reach bottom as with low prices, low interest rates and increased mortgage availability an eventual recovering economy could down a bear house prices to rebound sharply.