Liam Bailey, Head of Residential Research, reviews the current property market outlook
Date: 15th May 2008
The UK housing market is experiencing its most significant slowdown since the early 1990s. On almost every measure across the prime and mainstream markets and the new build sector, the market has shown worsening performance since September last year. The weak sentiment in the housing market is reflected across the wider economy, with consumer confidence, as measured by the NOP Index, at its lowest level since 1993.
With some regional and local market variations, house prices across the UK have been falling since the Autumn, with prices in April approximately 5% below their Autumn peak. More noticeable has been the impact of the market slowdown on sales activity, with mortgage approvals in March almost 50% below the long term average.
The most significant driver behind weak market conditions has been the continuing fallout from the credit crunch which began last autumn. Access to mortgage finance has undoubtedly been restricted, and the cost of finance has risen at the same time, with the average rate of borrowing for house purchase mortgages standing noticeably higher than a year ago.
We retain a positive outlook for the UK market in terms of pricing, noting that without sharply rising interest rates or unemployment, there is not yet a large number of forced sellers. However the credit crunch has proved its ability to provide surprises in recent weeks and without a rapid return to more normal lending conditions – the outlook for sale volumes and prices could be decidedly bleak during the remainder of 2008 and into 2009. We would note that the recent welcome intervention by the Bank of England in the UK’s wholesale funding market has had a limited impact so far on the mortgage market.