The housing market's biggest problem

Robert Powell
by Lovemoney Staff Robert Powell on 17 December 2011  |  Comments 12 comments

Robert Powell looks at the key factors that are holding back a housing market recovery...


It’s rare to switch on a TV or radio nowadays without tuning into talk of some sort of crisis. And the economic uncertainty these crises are instilling in the British economy is taking its toll on the UK housing market.

Almost 90% of respondents to a Royal Institution of Chartered Surveyors (RICS) poll cited uncertainty about the economy as the key factor holding back the property market. After this, 70% of the surveyors questioned said availability of mortgage finance was restraining recovery in the sector, while 42% pointed to house price falls.

For Ben Thompson, Managing Director of Legal & General Mortgage Club, confidence is the key factor stopping the market returning to normality. “People aren’t confident that employment outlook is good. They’re worried about what’s going on in the Eurozone. House prices are also broadly flat and in some areas they are falling,” he said.


But despite the factors currently weighing down the housing market, mortgage rates are actually remarkably reasonable.

Figures from the Council of Mortgage Lenders (CML) show that home loans are at their most affordable in eight years. Average monthly interest payments now typically make up 12.3% of income.

But while affordability is up, availability is still stagnant. In October, 44,500 home loans worth £6.5 billion were advanced, down from 48,200 (£7.1 billion worth) in September.

Jayne Walters from the CML said: “Unfortunately there are plenty of people who don’t meet the lenders' affordability criteria. And for those it’s proving quite difficult to get on the market”.

Stamp duty

Many expect transaction levels to pick up in the first few months of 2012 as the Government’s Stamp Duty holiday on properties worth up to £250,000 comes to an end in March.

However if history is to be believed this increased activity may not last. The last Stamp Duty holiday that ended in December 2009 produced a spike in transactions, followed by a slump. And according to the CML, this may well happen again.

More: 16 mortgages borrowers cannot afford to ignore | Get a best buy mortgage | Take a break from your repayment mortgage payments

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Comments (12)

  • unsworthsteve
    Love rating 23
    unsworthsteve said

    For a couple of decades politicians have curried favour with electors by promoting a regime that robbed savers to fuel the greed and stupidity of borrowers. They duly went out and squandered money on property and it's of little surprise that asset prices got bid way over long term economic value.

    I would be unsurprised if there is another downdraft in property prices before we get to stability. There's a good chance that property prices will show no growth over the next 5-10 years. I have no basis for that other than 40 years of watching and participating in investment markets

    Cue the 'they are not making land anymore you know' brigade?

    Report on 17 December 2011  |  Love thisLove  0 loves
  • supasap
    Love rating 19
    supasap said

    i have been on the boards for a while now and no-one has explained:

    - why house prices rose so quickly anyway from mid 1990's to 2007

    - why in the UK they have suffered only a minor correction and not a collapse as per the USA and Spain and Ireland

    - why there are more than 300k properties in UK that have been empty for more than 6 months

    - why people despair at general inflation but rejoice at house price inflation

    I thought they had created more land in Dubai.......

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  • bengilda
    Love rating 100
    bengilda said

    Mortgage lenders caught a bad cold by lending more to borrowers than borrowers could afford to repay - hence a big chunk of banking crisis. If a potential borrower can't afford to save a deposit then they are unlikely to be able to afford a loan repayment.

    Report on 17 December 2011  |  Love thisLove  0 loves
  • nickpike
    Love rating 308
    nickpike said

    Prices were artificially inflated and are being kept high by the present bunch who care about the banks above the people.

    Prices will collapse eventually when the politicians have no more gimmicks to throw at the market.

    When the economic collapse happens (worst is yet to come) expect prices to crumble.

    It's called the laws of economics.

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  • Aquasponge
    Love rating 38
    Aquasponge said

    • Pyramid selling, money supply and fraud. In the years leading up to 2007 the UK money supply was increasing by over 12% pa but the (artificial) inflation measure was very low (c.2% - ha ha). A ponzi asset bubble was created; the beast could only survive with existing members drawing out the top and re-investing at the bottom – very dangerous and now we face the piper.

    • Democracy focus only four to five years because of re-election. 2012 is the UKs destiny in preparation for the 2015 election - handy we have the world Olympic focus also; timing, triggers and blame my dear.

    • We tax income and not asset values; therefore, from a tax perspective, idle assets are good and productive assets are bad.

    • It is a technocrats wet dream to create short term artificial markets, debauch the currency in favour of one section of society over another and feel so powerful.

    Join the dots, pretty isn’t it...

    Report on 17 December 2011  |  Love thisLove  1 love
  • houstonstewart
    Love rating 25
    houstonstewart said

    Economic crisis, unemployment, Euro crash, inflated house prices, Mrs Miggins walking her dog on a wet Wednesday afternoon .... blame what you like but the simple truth is there HAS ALWAYS BEEN GOOD REASONS NOT TO BUY but people carried on buying anyway because fundamentally we are a country that likes to own their own home.

    My earliest properties (when God was a boy) the max mortgage was £25k, anything more had to come from loan companies at rates of around 19%! Plus you had to save with a Building Society for X years, kowtow to the BS Manager, 'beg, borrow or steal' it seemed to get on the housing ladder. But as always we did persevere because renting rarely made sense and our desire was to own, as it was then, as it is now.

    Renting is only 'fashionable' now because people have to live somewhere and mortgagees demand huge deposits which today's culture is not adjusted to achieving. Today's society is where people not only want but expect everything now, if something is broke, we don't fix, we replace, if someone else has something I also must be entitled, if something goes wrong it must be someone else's fault, never mine.

    'Renting' is the only chant, is also boomed from aloft by those who got out of the housing market (aka LoveMoneys, Cliff D'Arcy's of the world) who are absolutely desperate to be proved right and need everybody to follow their mantra to make it come true.

    The truth is, the answer to this article's heading 'The Housing Markets Biggest Problem' is simply that buyer deposits are as unreasonably high now as ridiculous was the ease to get a mortgage for those who couldn't afford the repayments that put the housing market in this mess in the first place. The current over compensation criteria applied by mortgage lenders to counter their past excesses is the real culprit and we have now an over reliance on those who are already on the housing ladder or landlords with buy-to-let.

    Without 'fresh blood' from first-time buyers the market can only continue to stagnate, so lenders make the deposits more reasonable (and lend to those who can realistically afford repayments) and first-timers will have the chance they crave and the market will improve - it's that simple!

    (I can see the Cliff D'Arcys and Economic pundits going puce with such simple rationality - Ah well, never mind)

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  • Mike10613
    Love rating 626
    Mike10613 said

    In real terms property is cheaper but not cheap enough for many first time buyers and so the property at the bottom of the price structure has farther to fall to become affordable. There is nothing 'wrong' with the market; it's just adjusting , so prices will become more realistic. It might even be a good time to buy property; but personally I think as an investment shares are better; property hasn't bottomed out yet. Many people bought and sold and moved up the property ladder and are now seeing a lot of value knocked off their houses, but you can't sell them; you need somewhere to live. At least for many, mortgages are rock bottom now as savers continue to subsidise them.

    Report on 17 December 2011  |  Love thisLove  0 loves
  • oldhenry
    Love rating 343
    oldhenry said

    The lack of employment prospects cannot be doing the UK any favours. Who wants to buy a more expensive house when the job market is so poor? Not many. I am surprised how resilient house prices are , in 1989 they fell much faster and further and stayed low until the later nineties. i last changed houses in 1995 so biught an 'expensive 'house relatively cheaply. But we had 'windfall' cash from parents in law dying. Inflation since then was horrific , we paid £175K but my neighbour paid £480K in Spetember 2007 - the top of the market- for his. Probably would not get that back though at the moment, even thiugh it is a desirable area.

    But if you are buying go for the area , not the house as that is the most important part.

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  • muira
    Love rating 30
    muira said

    mike and old henry are spot on,with less employment for working classes,there will be no affording mortgages or renting,buy a property that needs renovation at an auction.rock bottom,,live in it as you are doing it up,at the same time rent out the spare rooms,,and employ the tenants to assist with the labour involved ,at a reduced rental,until sorted.they get a roof over their head at a respectable rental,you get a renovated home quickly,cheaply,and help with the mortgage as you will pay 3 times what you borrow with a mortgage,and little or no help from handouts from the state (a harrowing thought)..make it your duty to pay it off long before term,as far as savings are concerned ,you are better going to vegas and playing the tables,we have yet to encounter hard times..

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  • Aquasponge
    Love rating 38
    Aquasponge said

    Dogs in Atas

    Out it worked. It isn’t pretty, dots join. Plan point five or attack pronged three either have governments.

    Report on 17 December 2011  |  Love thisLove  0 loves
  • SevenPillars
    Love rating 70
    SevenPillars said


    Perhaps you do not read the comments of everyone on here, but to say that you have not seen an explanation for the rise in prices from mid 90's to 2007 is quite remarkable.

    Here's the answer (one which I've suggested here numerous times before by the way). There was a massive growth in the mortgage market and the availability of mortgage credit during that period, especially from 2000 onwards. This also coincided with an almost total lack of regulation of the market and the growth of self-certification and fast track loans which by 2007 were 47% of the mortgage market at a time when the amount of mortgages given by the banks was in the region of £350billion for that year. In other words, easy money fed the higher prices and if your salary didn't come up to scratch you could just make one up and the industry actually encouraged buyers to do this. Self-cert has now been banned, those priced out now need 25-40% deposits, when 4 years ago all they needed to do was add 10 grand+ to their salary figure on a mortgage, etc.

    As to why no big price fall, again the answer is easy but slightly complex. The Govt and BoE rescued our dodgy banks by "printing" money out of thin air, something Euro economies like Spain and Ireland could not. The US is different because even though they also printed, they also had massive over supply of property. In other words, if the UK banks that were in trouble had been allowed to go under which is what a free market would have inflicted on them, the UK housing market would have been bust because the UK economy would have been bust. Under the guise of saving the banks and therefore the economy, the UK was able to con people into believing that there would be no housing crash. What we have seen instead is a massive fall in sales. Prices have not fallen off a cliff, but equally while there is demand out there, hardly anyone can afford to buy at current price levels. New regulations banning self-cert only make this much harder for everyone who didn't lie and cheat prior to 2007, but that's the UK for you.

    Report on 22 December 2011  |  Love thisLove  0 loves
  • sodit
    Love rating 135
    sodit said

    well that sure sums up the last government... it rewarded people who behaved badly (i.e. engaged in mortgage fraud) and punished those who behaved well.

    Wasn't there a proven mortgage fraudster who was rewarded by a highly salaried job in Brussels, which came with huge pension rights, and who, when that came to an end, was then given a sinecure in the House of Lords?

    Report on 01 January 2012  |  Love thisLove  0 loves

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