MARKET REVIEW
Tax rises and minimal pay awards will also restrain the ability of
consumers to pay large mortgage debts, even if they can persuade banks and building societies to offer them a loan. Lenders are unlikely to lessen the level of deposit they require to be paid which is on average £33,000 now, against £13,000 in the boom. The increase in VAT to 20 per cent will affect the spending
power of family budgets. The increase in the higher rates of income tax and insurance premium tax will also affect consumers. Steve Paola, of the Hay Group a global management consulting
firm, said, “After a decade of real pay boom, recession and continuing uncertainty are having a negative impact on real pay in the UK workforce. It may be a number of years before we see living standards rising at pre-crisis levels.” The Eurozone crises and general nervousness in financial
markets have also been undermining consumer confidence. Alison Beech, Business Relationship Director at Spicerhaart, said, “Assuming the financial contagion from the Greek and Irish economies doesn’t spread, I see the possibility for minor growth next year. Although I don’t expect there to be a double dip in the UK economy, I am less confident on this than before due to the many factors outside the Government’s control, such as in the Eurozone or US economy, which could easily tip the balance. “Lending will remain hugely constrained for those who do need
to move house and many homeowners will hold off applying for mortgages in the first place, paralysed by fear of the rising cost of living and falling household income. The gap between the housing markets of the South East and the rest of the country is set to become even more pronounced, exacerbated by foreign buyers and city bonuses.” There is also an expected rise in the number
of repossessions taking place from 36,000 last year to 40,000. Many lenders were reluctant to foreclose on homeowners in difficulty last year. Instead, and to avoid adding more write-offs, the banks and building societies exercised restraint. This stopped the number of repossessed houses from saturating the market as was the case in the 1990s when this helped to fuel the downturn. With the banks having to repay the government and obtaining funds from the wholesale market to support their lending, lenders will have to recover some of their assets.
It’s encouraging to see credit criteria becoming a little more liberal for first
time buyers.” mIcHaEL coogan
the best time to enter the market will be in the next year or so.” However barriers remain that might prevent potential buyers from acting on these perceived opportunities. Worries persist about job security, the ability to raise a deposit and obtaining a mortgage from lenders. These factors might inhibit demand for house purchase from growing as strongly as it might. House prices will also be affected by local issues such as schools,
I don’t expect
there to be
another double dip but I’m less confident on this
than before.” aLIson BEEcH sPIcERHaaRt
EffEcts on EstatE agEncy A continued slowdown or stagnation will affect property professionals, with more estate agents shutting up offices and or cancelling their advertising spending on portals such as Rightmove. Similarly, some property solicitors will not be able to continue trading, especially with the introduction of the Quality Conveyancing Scheme, new professional indemnity insurance rules affecting firms which practice in property law and the legal services market opening up in 2012. Eddie Goldsmith, chair of the Conveyancing Association has estimated that two thirds of solicitors firms who offer conveyancing will leave the market. Few believe that 2011 will see a rise in the number of home
purchases. Paul Broadhead, head of Mortgage Policy at the Building Societies Association said, “Although the housing market remains uncertain, the public does not expect house prices to fall as drastically as they did two years ago. As such, many expect that
16 FEBRUARY 2011 PROPERTYdrum
new developments and the availability of jobs. Areas that are reliant on state employment will be more affected as the government implements its spending review. Property prices in Kensington & Chelsea and the City of Westminster rose by 0.7 per cent and 1.5 per cent respectively during November 2010. The average property values in the 12 months to November 2010 are respectively 8.5 per cent and 11.4 per cent higher than the preceding year. This compares with a drop in the average property price in England and Wales of 0.6 per cent during November. This represents a reduction in the price of a property of £4,000 since this time last year. The truth is that if property prices were to
fall sharply then UK banks balance sheets would be in trouble and it would mean that the UK becomes another Ireland. Ireland’s problems came about because Ireland had to be bailed out due to private debt becoming
public debt to such an extent that the international markets did not believe Ireland would be able to continue to borrow funds. As such, neither the UK government nor the Bank of England will allow the UK property market to drop sharply. With so many variables affecting the housing market and the
economy generally it is difficult to predict how long the housing market can remain in its current state. Various initiatives may help some buyers, but with little sign of lenders increasing the level of lending it is difficult to see how the property market can recover.
Alistair Bertrand is a solicitor and director of Chebsey & Co.
aab@chebsey.com
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