Intervention won’t help house prices

“The extraordinary sight of a £50bn bail out to banks is not going to halt the slide in house prices which has come about as lenders decided that the mortgage products they were offering were simply unaffordable. Lenders had noticed that prices were topping out and the terms they had been offering were too generous.

They required new borrowers to find larger deposits and their valuers were marking properties down as they realised that people could only afford to borrow enough if the interest rates they charged stayed low. Inflation looks likely to put upward pressure on rates – in any event house prices don’t form part of the Retail Price Index and anyway banks have been extremely reluctant to pass on previous rate reductions. The traditional bankers caution had been forgotten in their rush to provide ever bigger mortgages. Something that will have changed after the fright of the past six months and if they are bailed out, something that they may well feel they have got away with!

Even if you assume that this hand out by the Bank of England allows banks the confidence to start lending again – which in itself would be welcome there is no chance that they will immediately return to the days of 100% mortgages or that they will want to charge less for their few remaining products. The best we can expect is that they will at last start to actually provide mortgages again but the rates will be high(er) and the terms less attractive which means that both sale prices and volumes will still be at reduced levels. In reality, as we saw when prices peaked, the market takes some time to change direction and the current slide is unlikely to be reversed before the summer.

At where we bring together property for sale across the internet we can see a back log of unsold property on the market that has built up since Northern Rock. The average estate agent has over 70 properties for sale on his books. New property coming onto the market is being priced to compete with this older stock and all vendors are having to adjust to the current market conditions. Only those who have taken a realistic view of what they might expect to get are catching the eye of potential purchasers leaving nearly 4 out of 5 house sellers currently without a buyer.