ANALYSIS
8 6 4 2 0
-2 -4 -6
% 3m/3m
LACK OF RECOVERY IN MORTGAGE APPLICATIONS POINTS TO FALLING HOUSE PRICES
Thousands
Nationwide House Prices (lhs) Mortgage Approvals (rhs)
91 93 95 97 99
rates have fallen. However, the decline is only to the historical average and the total cost of ownership remains well above the levels prevailing in previous post- recessionary periods. An equivalent calculation for all house-
buyers suggests that the total cost of ownership, including the implicit opportunity cost of capital tied up, is down from recent highs and below the long-term average. But it is still well above the levels prevailing in the mid-late 1990s at the start of the last housing boom. By including the
01 03 05 07 09 11
140 120 100 80 60 40 20
cost of the deposit, we have a measure that more accurately conveys the full costs for home-buyers and allows us to assess the relative attractiveness of residential property compared with previous periods. This explains why mortgage applications
have remained low and house prices have fallen back after an initial recovery.
The morTgage issue The lack of recovery in mortgage applications points to falling house prices, Carl Astorri adds, “Against this backdrop,
we expect house prices to decline further over the coming year, although at a modest pace. Average household income will come under pressure from sub-inflation pay rises, given the very weak pace of economic recovery and high rate of unemployment. Increased taxes will weigh further on incomes, as the Government reduces its deficit. Credit availability remains poor as banks continue rebuilding capital after the financial crisis and lending will be constrained by new regulations designed to reduce risk and leverage on bank balance sheets. High levels of indebtedness by the UK consumer will also reduce appetite for new credit. “However the low cost of sustaining
existing mortgages means that there are few forced sellers in the market, provided there is no ‘double-dip’ back into recession, while the market is also supported by an overall shortage of housing supply. This should keep further house price falls to a modest level, as the UK economy continues its slow recovery.”
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PROPERTYdrum AUGUST 2011 37
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