Highs and lows in housing

The UK housing market has been a tale of two halves in 2010, with growth in the first half of the year followed by a period of stagnation as concerns over the economic outlook grew.

The relatively strong run that the UK housing market had enjoyed from March 2009 ended in the early summer of this year. Prices in the mainstream market began to fall from around June, and a month later, in July, prices in prime central London began to fall back.

The general election in May and the Con-Lib coalition government’s comprehensive spending review in October saw sentiment in the housing market plummet, with the traditional September “back-to-school” pick-up failing to materialise.

“Early growth, continuing from last year, gave way post-election to a period of uncertainty and stagnation through the middle of the year,” says Adam Challis of Hamptons International. “This was the result of government plans to tackle the deficit at a time when the economic recovery remained far from assured.”

Government actions were not the only problem. Liam Bailey of Knight Frank, the upmarket estate agency, says that while the market appeared in relative good health up to the summer of this year, there were in fact fundamental problems affecting the market under the surface.

The main issue was the constrained availability of mortgage finance.

According to the Council of Mortgage Lenders, the contraction in UK mortgage lending since 2007 has been the most severe on record.

In both 2008 and 2009, fewer than 520,000 loans for house purchases were granted – lower than in any year since 1974. In the preceding decade, the number of loans for house purchases averaged almost 1.2m a year – so the fall has been in excess of 50 per cent. The CML said it expects no rise in lending for house purchases in 2010.

Earlier this year, the trade body revised its forecast for gross lending this year down from an original forecast of £150bn to £137bn, compared with £143bn in 2009. “The mortgage market in 2010 has been very similar in size and shape to 2009,” says Melanie Bien of Private Finance, the mortgage broker. “The self-employed who can’t prove their income have been unable to get funding, as have those with a problematic credit history.”

While lenders did ease their criteria slightly in 2010, with more mortgages available at higher loan-to-values, mortgage brokers say the best rates are still only available to those with large deposits of between 25 per cent and 40 per cent.

As a result, there has been a growing divide in the UK between those with equity and those without. This has caused the average age of a first-time buyer, with no financial assistance from their parents, to rise to 37 in 2010, according to the CML.

Not all parts of the housing market have fared badly this year. Top quality “best in class” properties in certain areas of prime central London have achieved in excess of 2007 prices – the peak of the market.

The prime central London market has been largely buoyed by demand from overseas buyers, looking to take advantage of weak sterling. Foreign buyers made up over 60 per cent of prime central London buyers in 2010, according to Savills.

In contrast, domestic buyers have become more cautious. “Unless the property is “perfect” in terms of location, price and condition, it is not selling, even those in prime locations,” says Simon Barnes, a London buying agent. He says if houses are overpriced they are sticking, with buyers preferring to wait for the ideal property rather than compromising.

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