House prices are going to crash again
Feeble lending so far in 2010 suggests that house prices are set to crash once more...
During the housing market’s boom years, house prices rose relentlessly. Indeed, UK house prices rose every year from 1995 to 2007. Then along came the credit crunch to put an end to this winning streak.
The great mortgage boom
Of course, in order for house prices to rocket, so too must mortgage lending. As you can see from the table below, our total mortgage debt tripled during an incredible boom in credit:
|
Year |
Mortgage debt (£bn) |
Increase (£bn) |
Increase |
|
1995 |
390 |
15 |
4% |
|
1996 |
410 |
19 |
5% |
|
1997 |
431 |
22 |
5% |
|
1998 |
456 |
25 |
6% |
|
1999 |
494 |
38 |
8% |
|
2000 |
536 |
42 |
8% |
|
2001 |
591 |
55 |
10% |
|
2002 |
674 |
84 |
14% |
|
2003 |
773 |
99 |
15% |
|
2004 |
876 |
102 |
13% |
|
2005 |
965 |
90 |
10% |
|
2006 |
1,077 |
112 |
12% |
|
2007 |
1,186 |
109 |
10% |
Source: Bank of England, Lending to Individuals
The table above shows that between 1995 and 2007, the UK’s total mortgage debt increased from £390 billion to £1,186 billion. In other words, it more than tripled in the space of just 12 years.
During the boom years of the Noughties, our total mortgage debt grew steeply, growing by between 8% a year (in 2000) and 15% a year (in 2003). At the dizzying peak of the housing bubble in 2006/07, mortgage debt was rising by almost £10 billion a month.
What about today?
So far, we can see that strongly rising mortgage lending goes hand in hand with lively growth in house prices. Now here’s the post-boom increase in mortgage lending:
|
Year |
Mortgage debt (£bn) |
Increase (£bn) |
Increase |
|
2008 |
1,225 |
39 |
3.3% |
|
2009 |
1,234 |
9 |
0.7% |
|
March 2010 |
1,239 |
5 |
N/A |
Source: Bank of England, Lending to Individuals
As you can see, the total increase in mortgage lending during 2009 was just £9 billion. That’s less than a single month’s increase during 2006/07. In fact, 2009’s £9 billion increase in mortgage lending was lower than in any year since 1987, when the Bank of England’s quarterly mortgage-lending data began.
Looking at these figures, it’s entirely possible that growth in mortgage lending in 2010 will be zero or even negative. If we compared it to the boom years, mortgage lending today is as dead as a dodo!
Where’s the spring bounce?
Related blog post
- John Fitzsimons writes:
Is now a good time to buy for first-time buyers?
The Stamp Duty threshold may have been raised to £250,000, but are the conditions right for first-time buyers to get onto the property ladder?
Read this post
During the spring months, mortgage lending and house prices frequently rise, largely because many home-movers like to leap into a new home between March and May. Alas, the bad news for house-price bulls (optimists) is that mortgage lending in March was very, very sluggish.
According to the Bank of England, net mortgage lending rose by a feeble £318 million in March -- roughly a sixth of the £1.8 billion increase reported in February. Furthermore, that’s just a thirtieth (3.3%) of the peak £10 billion-a-month increases of 2006/07.
Not only was mortgage lending weak in March, but the number of approvals (new home loans granted) was disappointingly low. Although approvals rose to 48,901 in March from 46,882 in February, this is a poor show for this time of year. At their peak, mortgage approvals were running at almost three times their current level -- close to 135,000 a month.
In addition, approvals in the first quarter of this year were the lowest for any first quarter, bar 2009.
- Read this blog: Is now a good time to buy for first-time buyers?
We’re in a false market!
John Fitzsimons looks at some simple ways to boost the value of your home.
Put simply, continued rationing of mortgages suggests that the outlook is grim for the housing market. This situation will worsen from April 2011, when banks must start to repay the £300 billion of emergency funding provided by the Bank of England’s Special Liquidity Scheme (SLS) and Credit Guarantee Scheme (CGS).
To me, the housing crash which ended last spring remains unfinished business. The main support for the housing market is ultra-low interest rates, but these will rise eventually. In addition, today’s false market is being propped up by a very low number of transactions, with price rises largely coming from London and the South East.
In summary, the stage is all set for the next house-price slump. Clearly, the 1995-2007 housing bubble has a long way to go before it has properly deflated. Indeed, the next slump could be worse than that of 2007/09, so expect house prices to flatten and then fall later this year...
- Watch this video: 3 ways to boost your home’s value
More: Your home’s value is about to drop | Make this mistake and lose £66,424
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Comments
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ok so were in all this is the policey for taking homes to pay for care gone so is it iworth buying a home why not a shop with room to live
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It's seems a overly simplistic argument to compare properties and households and conclude that there is a chronic under supply of property. The number of households higher as it includes various people living in communal accommodation (student halls & elderly in care homes) count as a households (over 1 million in the UK) but do either of these group want or can afford there own home. The UK has a low average households size when compared to japan: 2.4 compared to 2.8. It isn't a fixed number but one that inevitable reflects affordability and employment. It seems reasonable with the increase in unemployment that we will see change in this figure if not already. A small increases in households size radically changes the balance. Government statistic show that there are over a million empty homes in the UK. This does not seem very in line with a counry facing a chronic shortage. Rents, which a much purer expression of demand (no credit restrictions), are down over the last few year (findaproperty(. This again does not tally with a housing shortage.
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you are all stupid. you all think that houses going up in value is a great thing, but what does it get you, higher stamp duty when you trade up, you sell high but buy even higher, higher IHT, higher mortgage and interest payments, and then what will happen to your children when they want to buy, it will be impossible or you will have to help them so you will then lose all the money that you think you are making on your house now. we are all being brainwashed, a lot of people have a vested interest in the house market, the media is manipulating us with dodgy data from lending institutions estate agents and surveyors who all need the market to stabalise and so are frantcically talking it up. if you look at real data you will see that mortgage activity especially for first time buyers is at record historical lows. if houses fall in value this is what happens 1 consumer confidence plummets, you stop going out and buying the rubbish that you dont need. 2 stamp duty revenues fall 3 IHT revenues fall 4 you stop getting those much needed equity release loans to buy the rubbish you dont need so bank incomes fall 5 bank mortgage books fall in value 6 estate agents and suveyors lose income 7 the priveleged and rich people in our society who control media and communication lose money because they own vast amounts of property i could go on but the basic point is that it helps very few people when house prices exceed the income growth rates, but this countrys economy has became over reliant on this easy source of revenue. lets all hope that our houses go down, because it will work out better for most of us in the long run.
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15 July 2010