House prices tumble at fastest pace since 1995

According to recent figures released by the Nationwide Building Society house prices across the UK took the biggest tumble since June 1995 in November.

The figures from the mortgage lender showed that house prices had fallen by 0.8%, which was the first fall since February last year and the biggest fall in twelve years. The annual rate of inflation on homes has also tumbled, falling from 9.7% in October to 6.9%.

The fall of 0.8% equates to an average £1500 drop in house prices, and this means that the average house price now stands at £184,099. However, this still means that the average house price is around £12000 more than just one year ago. In addition to the house price fall, the Bank of England has confirmed that mortgage approval levels have also slumped, with 88,000 new mortgage approvals in October, which was 12% lower than the previous month and 31% lower than October last year.

Nationwide officials confirmed that the housing market was facing a cooling off period, stating: “Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market.”

The Council of Mortgage Lenders added that the effects of the credit crunch and turmoil in the financial markets were affecting the housing market, and that the government needed to invest more money in the financial markets.

Michael Coogan from the Council of Mortgage Lenders stated: “We would like the government and the Bank of England to consider how best to unblock the funding log-jam that some UK lenders are experiencing, so that they can continue to fully meet consumer demand.”

Tom Smith
5th December 2007

Another drop in Northern Rock shares

Following the turmoil and chaos that took hold in September of this year, high street lender Northern Rock has seen its share prices plummet yet again, this time falling to their lowest level yet.

According to recent reports shares in Northern Rock, which were worth £12 back in February of this year, fell to under £1 per share on Tuesday. This comes in the light of concerns over whether the bank will be bought out, as although there have been a number of potential purchasers there has been no firm offer as yet.

The serious woes faced by Northern Rock began in September, after it became widely known that the lender had approached the Bank of England for an emergency loan of billions of pounds. Once this became public knowledge, savers flocked to the bank to withdraw their savings amidst worries that the bank was about to fold, and over the space of several days over £2 billion was withdrawn from the bank.

Share prices also plummeted, and Northern Rock gained a reputation as one of the highest profile victims of the credit crunch and the turmoil that has swept across the financial sector.

One bank official stated: ‘Based on the information it has so far, the board of Northern Rock believes that the range of values for the existing equity implied by the proposals is materially below the market price at the close of business on Friday.’

Chairman Bryan Sanderson added: ‘The value to shareholders from any proposals… remains highly uncertain and will be dependent, among other things, on when and if there is an improvement in market conditions including access to liquidity and the value created, if any, from the run-off of the assets and liabilities remaining in the company following any disposal of all or part of its business.’

Tom Smith
25th November 2007

Barclay’s share prices fall amidst rumours

Barclays Bank, one of the UK’s high street banking giants, has seen its share prices plummet to their lowest level in two and a half years.

It is thought that the fall in share prices could be partly due to rumours that the bank has experienced financial problems in light of the recent credit crunch that has swept across the UK. Rumours were sparked back in August when the bank took out two overnight loans from the Bank of England, which was blamed on ‘technical’ problems.

Share prices tumbled by 8% at one point, taking them to 524.5 pence. This was followed by a slight recovery, with share prices at 537.5 at closing, which was a drop of 5.9%. Barclays has denied having any funding problems following the emergency loans. In fact, in order to try and restore consumer confidence the bank’s head of global retail and commercial banking, Frits Seegers, purchased £700,000 worth of Barclay’s shares on Friday.

Ian Poulter at Landsbanki Financials stated: “There are concerns about writedowns and everything else, but the comments Barclays have made to date suggest that is not an issue, as does the fact they are still buying back their own shares.”

The thirty month low in share prices comes just shortly after the crisis that hit Northern Rock, where share prices plummeted by over 80% after it became widely known that the bank had taken an emergency loan from the Bank of England. This fuelled speculation that the bank was on the verge of collapse, and over £2 billion in savings was also withdrawn in addition to a huge tumble in share prices.

Tom Smith
10th November 2007

Signs of housing market cool down

Predictions from many economists and analysts that the housing market in the UK is cooling down have been proven following figures relating to house prices for September.

According to figures house prices in September fell for the first time since December, and to many this reflects the start of the cooling down period for the UK housing market. The figures come from the HBOS house price survey. According to the figures there was a 0.6% drop in house prices, which was a far cry from the predicted 0.4% increase.

The average house prices has now fallen to just below the £200,000 mark, taking the annual three month rate of house price inflation to 10.7% compared to the expected 11.1% rise that had been forecast. Halifax officials state that although the economy remains strong it is likely that house price inflation will fall further in the coming months, as the housing market in the UK continues to cool.

Martin Ellis from the Halifax stated: “September’s price fall is consistent with the normal behaviour of the market during a slowdown. A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market.”

This could mean good news for first time buyers that are looking to get onto the property ladder, but could result in problems for those that have recently taken out large mortgage, many of whom could find themselves falling into negative equity.

The likelihood of an impact on consumer spending has also increased as a result of the slowdown in the housing market.

One economist stated: “Since house prices gains have stalled, we believe it is highly likely that spending growth will also hit the wall in the months ahead.”

Tom Smith
4th November 2007

Predictions of further interest rate rises fall

Earlier this year, following July’s 0.25% interest rate rise in the UK, many economists and analysts in the UK predicted that there would be another interest rate rise before the end of the year.

Interest rates have gone up five times since August of last year, with the series of 0.25% interest rate rises taking the base rate from 4.5% to 5.75%. Another 0.25% rise, as predicted by these industry experts, would have taken the base rate to 6% – it is already at its highest in over six years.

However, many industry experts appear to have changed their minds in light of the current turmoil that is hitting the mortgage markets, and following the credit crunch that is having global repercussions the number of analysts predicting a further interest rate rise has fallen. According to reports only one fifth of economists and analysts now believe that the interest rates will rise again this year.

The drop in the number of experts predicting another rise is in part the result of a recent statement that was released by the Monetary Policy Committee following its last meeting early in September, where it was decided that interest rates would remain on hold. The MPC claimed in its statement that its two main reasons for leaving interest rates on hold were that CPI inflation was now within government targets, and also because of the effect that the credit crunch could have upon the industry.

Howard Archer, an economist at Global Insight, stated: “We now no longer expect interest rates to rise to 6 percent in the fourth quarter, but instead anticipate that the Bank of England will sit tight for an extended period. We suspect that growth will lose momentum over the coming months, and that underlying inflationary pressures will gradually abate. This will become even more likely the longer that the current financial market turmoil continues.”

Tom Smith
16th October 2007

Is a house price crash on its way?

According to some experts in the UK there could be a housing market crash around the corner, similar to that seen in the 1990s.

The predictions come from industry professionals at the Royal Institute of Chartered Surveyors. Over the coming year expectation for house prices in the UK have been lowered by the RICS. According to one senior official from the institute the predictions are perfectly ‘legitimate’ and have not been made irresponsibly.

Over the coming year officials from RICS are predicting that there is a 20% chance that house prices will fall by 10% in the London area. In a similar housing market crash in the 1990s, house prices plummeted on average by around 35%. However, despite these predictions from RICS officials there are other industry professionals that disagree and feel that the chances of a housing market crash are very slim.

One industry expert stated that although interest rates have gone up by a total of 1.25% over the past year in
a series of 0.25% rises, there has been no sharp rise in interest rates. This, along with other factors, made the chances of a housing market crash very unlikely, he stated. Banks and building societies in the UK have been reporting a slowdown in the housing market, and independent research has indicated that both consumer interest and agreed sales have been slowing down over the past few months.

If the housing market does crash, as it did a decade ago, many could see the equity levels in their homes plummet, and for those that have recently taken out 100% loan to value mortgages this could leave them in negative equity, which means that they will owe more on their mortgage than the value of their property.

However, for first time buyers who are looking to get onto the property ladder a housing market crash could prove to be the ideal opportunity to increase affordability – recent reports have indicated that many first time buyers are taking a ‘wait and see’ stance rather than rushing into purchasing, amidst rumours that house prices will fall over the coming months.

Tom Smith
16th October 2007

House Tipping Point On The Way

Figures from HM Revenue and Customs have indicated that the number of properties sold in England, Wales and Northern Ireland was at its highest point since the late eighties.

During 2006-7 the number of properties being exchanged was 1,859,000. The number of sales was up by 11% compared with then figure for the previous twelve months. House prices went up by the same percentage and are growing at more than their average rate over the long term.

The number of homes sold at the last peak in 1988 was 2,148,000 for England and Wales. In 1989 sales of property slumped by 25% and the house price boom that had run for six years fizzled out after the Bank’s base rate was pushed up and mortgage rates followed suit.

That crash in house prices in 1989 came as a shock to most of the nation who had seen house prices only going upwards for the previous thirty years. The Nationwide BS House Price Index showed that average house prices in the UK had gone up every year from 1955. But 1989 changed all that and house prices fell by 11% and it was 1998 before house prices reached the same levels as 1989.

The early nineties became the period of negative equity for many people, with many houses worth less than the mortgages owed on them. Unemployment went up and the recession bit. With homeowners finding it difficult to make their mortgage repayments, many fell into arrears and there was a rise in repossessions. Mortgage lenders had a glut of properties under their ownership and off they went at auction at bargain prices. Between 1991 and 1998 over 400,000 homes were repossessed and a million people were left without a home.

A lot of the sequence of events that led up to the 1989 house-price crash are being repeated in the current situation. The parallels are undeniable: house prices are out of reach of first-time buyers; house prices seems to be going upwards for ever; interest rates are on the increase; and mortgage rates are on the rise too. Also, the ratio of house prices to incomes is now at its record level, and customer debt is an ever-growing problem in this country. The noises coming out of the Bank of England suggest strongly that interest rate rises have not finished yet – there’s almost been a promise that there will be another quarter point rise in July. And, most strikingly of all, repossessions have started to rise again.

Property prices on average are still on the up and have been for eleven years, but it sure looks unsustainable. Many experts are still saying that they do not believe there will be a house price crash, but more of a gentle deflation. There is so much talk of the possibility, however, that it’s hard to see people continuing to fork out large sums for houses and the repayments at such high levels, when a downturn may indeed be just around the corner. The tipping point must be in sight. It’s just a question of how steep the drop is going to be on the other side.

Tom Smith
17th July 2007

Insurance premiums could fall for those with penalty points

In the past UK motorists that have clocked up penalty points on their driving licences have seen the cost of their vehicle insurance premiums rise quite considerably as a result of this.

However, according to recent reports from insurance companies points that have been accrued through speeding will no longer result in rising premiums, as speeding will no longer be viewed by insurance companies as signifying that the driver is a greater risk on the roads.

Insurance companies have revealed that points accrued through speeding have become so common that there is little point viewing these drivers as a greater risk on the roads. This means that many UK drivers with points on their licence as a result of speeding may find that their insurance premiums start to fall. Some insurance companies have announced that those drivers with up to nine points on their licences will now be treated as those without any points in terms of insurance premiums.

In the past, these drivers could have seen their car insurance premiums rise to four times the amount of standard premiums. Swinton Insurance has been the first to make the announcement about the fall in insurance premiums for those with points, and it is expected that other insurance firms are set to follow in the footsteps of the insurance giant.

An official from Swinton Insurance stated: ‘Penalty points used to be the yardstick for dangerous drivers, but with up to 10million drivers collecting them, they are so common place that they have almost become pointless. We will be looking at each driver as an individual and not automatically upping the cost of their premium if they have six penalty points on their licence.’

Tom Smith
4th June 2007