Lenders give up predicting the future

“The reality is that, given all the market uncertainty, it is very difficult to make accurate forecasts.” So says the Council of Mortgage Lenders (CML) who represent the bigger banks and building societies – for the time being. Well, at least they have the honesty at last to admit that they haven’t a clue!

For years, the over paid mouth piece of the lending industry has pontificated on how the property market was heading for a soft landing and that members of the CML were going to ensure the long term stability of the housing market. In January this year, the CML were quoted as saying that “it expects house price inflation to be largely flat in 2008.” In May of this year they predicted that house prices would fall 5-10% despite 35% fewer transactions and an 8% fall in gross mortgage lending. The CML now admits that this looks outdated and say in an article on BBC online. “Trying to update that is now futile” said a clearly exasperated flunky.

Well fear not dear reader, we are not all holding up our hands and telling you that we don’t have a clue. At the end of August the recently swallowed head of HBoS was prepared to predict that there were tough times ahead (not his own, we must presume) and then Graham Beale, the head of Nationwide said that he didn’t expect to see signs of a recovery in the housing market until 2010. Not only that but being a banker, Mr Beale wanted to put some numbers on this and suggested a peak-to-trough fall will reach 25%.

You may find the the idea of a banker telling you that the financial end of the world is neigh to be as reassuring as stepping onto a Ryan Air plane to be met by the captain wearing a life jacket and holding a guide dog. Like asking what exactly has gone into a sausage, we don’t really want to know the answer, do we? After the last week, those responsible for the mess that the property market is in – no, not short sellers but the mortgage lenders have finally hoisted a white flag and admitted that at present they don’t know.

Rightmove the property portal told us at the start of the week that their survey of asking prices showed a mere 4% fall year-on-year. What this suggests is that whilst the lenders admit that prices have fallen 10%+ so far and those in the market admit that in many places it is actually closer to 20% home owners have yet to get the message. They are still asking too much, in the expectation I guess that they will get knocked and have to accept a lower offer. The problem with this is that what actually happens is that serious buyers (the ones who have already got a mortgage offer) think that you are unrealistic and not only will they not take you seriously, they won’t actually come and see your over-priced home. If and when you ‘get real’ and decide to quote a realistic price then buyers will recall that your house has been on the market for weeks and will presume that it has a problem. The market will smell blood and try and steal your lunch as the city boys used to say. Then you really will get some low offers!

For the last two years I have been a part of the MoneyWeek property round table. My colleagues in the main have been in denial with one famously saying that there was more chance of Jade Goody becoming chair of the Race Relations Board than there being a property crash. However, James Ferguson was spot on and whilst I hope he will not end up being totally right, his astute observations have proved correct so far. You may not want me to tell you but when optimistic, James can see the market falling a further 25% which for many will mean that house prices will have fallen up to 40%. 

So there you are. As we all suspected, the banks have admitted they don’t really know. If you push them, you wouldn’t want to hear what they say anyway although to be honest it’s likely to be better than what will really happen. The forecast is not good. The Bank of England has lost control of the lending markets (Interbank lending is still over 1% higher than bank base rates) and unless both confidence and funding returns many people are going to see the value of their home halve from it’s peak just a year ago!