‘Crunch time’ for house prices

September will be “crunch time” for the housing market, property analysts have warned, following another week of conflicting market data. Many are looking to post-summer activity to determine whether the recent slowdown is temporary, or the start of a second downturn.

On Tuesday, the Royal Institution of Chartered Surveyors said house prices began to fall for the first time in a year in July as sellers rushed to put their properties on the market and demand from buyers declined. It found that 25 per cent of surveyors had reported falling house prices over the previous three months, compared with 11 per cent who said prices rose.

This came after Nationwide Building Society and Hometrack recorded average price falls of 0.5 per cent and 0.1 per cent, respectively, in July.

Mortgage brokers warned that any prolonged drop in prices would make lenders “more jittery” about lending at higher loan-to-values as it would increase the risk of negative equity.

“Lenders have been relaxing their attitudes to higher loan-to-value lending in recent months as property prices have been rising, with more lenders offering mortgages to those with a 10 per cent deposit, at increasingly competitive rates,” said Melanie Bien, director of Private Finance. “But with prices now set to fall, there could be a reassessment of attitudes.”

Figures released later this week have further clouded the outlook. Although the Council of Mortgage Lenders (CML) reported a 19 per cent rise in mortgage lending for house purchases in June – its highest level since November 2009 – it has subsequently warned of “strong headwinds” ahead and downgraded its lending forecast for 2010.

The trade body said it believed gross mortgage lending in 2010 will be £140bn, down from its earlier forecast of £150bn.

However, some analysts dismiss speculation of further sharp falls in prices. “July/August is traditionally a relatively quiet
time so to try and make predictions based on a single month is premature,” said Ray Boulger of John Charcol.

Lucian Cook, head of residential at Savills, agreed: “I think September will be important to see where the housing market is at. It will be a slow summer. Autumn is going to be crunch time.”