Ailing Housing Market Needs Shot Of New Blood

[Pent Up]

Nice bearish article.

http://www.independent.co.uk/money/spend-save/ailing-housing-market-needs-shot-of-new-blood-2260709.html

The most authoritative survey of UK house prices – compiled by the Land Registry – paints a pretty stark picture. House prices have been falling for the past five months and now sit lower than they did a year ago. What's more, the number of sales is at a level last seen during the depths of the financial crisis of 2008. Restrictive mortgage lending (Lloyds lowered the loan to value – LTV – ratio on many of its mortgage products last Wednesday) and economic uncertainty all play their part in the continuing house price slide.

Property experts say there is only one way out of the market morass: getting the number of first-time buyers – again approaching record lows – back into the property market.

"First-time buyers are the essential building blocks of the housing market," says Samantha Baden, a property analyst at Findaproperty.com. "Unless we have a steady supply of new first-time buyers coming into the housing market, there's a domino effect on every further link in the property chain. Liquidity dries up and the number of transactions slows down."

The drop in first time buyer numbers is stark. In 2000 there were 500,000, last year just 200,000. A report from HSBC last week concluded that house prices would have to fall 43 per cent to restore the same price to earnings ratio as was prevalent in 2000. The reports also slammed Government-sponsored shared equity schemes as "woefully inadequate". No wonder, according to the land Registry sales of £150,000 to £200,000 homes are down 45 per cent from December 2009.

House price declines have done little to attract new homeowners, with the number of first timers falling by 13 per cent in the past year, according to the Council of Mortgage Lenders. Lenders are still demanding daunting deposits and net mortgage lending, after repayments fell last year to £8.15bn – the lowest level since the Bank's records began. More and more young would-be homeowners are now forced to rent or live with their parents until things pick up.

"Many with student loans outstanding or expensive lifestyles are finding it impossible to save the minimum of 10 per cent deposit to buy a property on their own," says Helen Adams of FirstRungNow.com. "Lenders are being particular about who they lend to, which is to be expected with the jobs market being rather insecure."

With first-time buyers all but locked out of the market and the knock-on effects taking their toll, the industry is trying to work together to find a solution. In the Budget, the Government unveiled the new FirstBuy scheme which will be available for one year to first timers looking to buy a new-build property. Buyers have to cover a 5 per cent deposit while the Government and house builders stump up 10 per cent each as an interest-free loan for five years. This brings buyers up to the 25 per cent lump sum needed to access the best mortgage rates. While it has been cautiously welcomed by many, the scheme is set to benefit only 10,000 people, raising criticism that more needs to be done.

"Landlords are buying one- and two-bedroom properties which keeps the prices up. I'd like the Government to have done more to disincentivise this practice as it keeps the first-time buyers out by inflating the prices at the bottom of the market," says Ms Adams.

The abolition of stamp duty for first timers on properties up to £250,000 has been a help. Shared ownership has also been around for about six years and enables them to buy a share of a property with a small deposit, taking the mortgage in conjunction with a housing association. There's also a rent-to-buy scheme allowing social tenants to fix a property price and pay reduced rent until they save enough to buy a proportion of that property on a shared ownership basis.

...

Others argue, however, that the solution is far more straightforward – bide your time and save up for a bigger deposit. "Sadly, the most sensible way to help first time buyers is to stop interfering in the market, allow prices to fall back to affordable levels and for buyers to re-enter the market when they can afford to do so," says housing expert Henry Pryor. "With average prices falling for six consecutive months, it would be irresponsible to encourage property virgins into the market."

Expert View: Helen Adams, FirstRungNow.com

"Without first-time buyers there is no property market. Unless the bottom of the chain is active, nothing happens further up the property chain, and the whole market is stifled except for those buying second properties to rent out or holiday homes."

Very good advice from Henry Pryor.

Edited April 3, 2011 by Pent Up

[NEO72]

Nice bearish article.

http://www.independent.co.uk/money/spend-save/ailing-housing-market-needs-shot-of-new-blood-2260709.html

Very good advice from Henry Pryor.

Started off thinking it was just another 'must have FTBs even more indebted' type piece but at least they balanced it out a little with the stuff from Henry Pryor. Hasn't he has been quite a ramper in the past though? Following on from the earlier thread about this, I'm glad they couldn't get hold of any quotable FTBs wanting an even larger debt millstone as opposed to lower prices.

[Pent Up]

I always thought he was a ramper too. He used to be an estate agent, not sure what he actually does now though. He's been very good the last few times ive heard him. Looks like he's joined the dark side

[Cinzano Bianco]

Anyone know where to find the HSBC report he talks about in the article?

[Reck B]

"First-time buyers are the essential building blocks of the housing market first layer of the housing ponzi pyramid," says Samantha Baden, a property analyst at Findaproperty.com. "Unless we have a steady supply of new first-time buyers mug punters willing to buy both the debt and the house off the last load of mug punters coming into the housing market, there's a domino effect on every further link layer in the property chain pyramid. Liquidity dries up and the number of transactions slows down."

Don't be the mug holding the box full of turd when the music stops.

Edited April 4, 2011 by Reck B

[Guest_flaps_*]

And sentiment continues to turn....

[mattyfc]

Nice bearish article.

http://www.independent.co.uk/money/spend-save/ailing-housing-market-needs-shot-of-new-blood-2260709.html

Very good advice from Henry Pryor.

"Sadly, the most sensible way to help first time buyers is to stop interfering in the market, allow prices to fall back to affordable levels and for buyers to re-enter the market when they can afford to do so,"

Good advice indeed.

Why is he using sadly? Would he be glad if FTB dived in and found there £36k deposit wiped out in a year or two?

Prices will fall to levels where FTB enter the market; speed will be determined by interest rates. Most FTB have friends who bought in 2007 or before and are now trapped. Sentiment is in FTB favour. The market is a standoff, employment levels are solid so not many forced sales. Prices need to fall but vendors will not reduce them.

Pressure will build on vendors as rates rise and prices will begin to drop, just a matter of time. Banks are making more negative equity mortgages available which should help those who need to sell.