Rightmove prices show property under pressure

The Telegraph reports on a recent release from Rightmove that there are now double the amount of properties on the market than mortgages being approved.

Of especial concern is that sellers are proving very reluctant to reduce prices to increase the chances of a sale.

The bottom line is that any property is only worth what someone is willing to pay, and the lack of First Time Buyers in the market means the number of buyers overall in the market is very much reduced.

The result is that there are too few people buying, and sellers are not making rational corrections in price for this.

While Rightmove also provides the following statement, “There is still a clear imbalance between supply left on the market and demand even taking this into account. Demand is restricted by mortgage availability and potential buyers economic circumstances.”

While demand is indeed restricted by mortgage availability, it’s important not to fall into the trap, oft parroted in the media, that the problem of slow market conditions is due to banks being more restrictive.

In fact the opposite is plainly true, and that property prices and not mortgage availability are the key problem.

Property prices experienced a boom as cheap lending – up to 125% mortgages – resulted in people over-reaching normal sensible spending. Property prices are also way ahead of normal trend curves such as the earnings to price ration.

Market conditions suggest that property prices will need to come down, the sooner the better to get this correction out of the way.

Otherwise, if we don’t see a clear orderly retreat from the current highs, then the twins dangers are extended stagnation, or a sudden house price crash as too many sellers knock down prices at the same time.

 

Filed under: Property

New FSA powers unlikely to stop property collapse

The BBC reports that the FSA has implemented new poers to ensure that repossessions are now a matter of last resort for mortgage lenders:

Under the new rules for treatment of borrowers in arrears, the FSA is insisting that:

• firms must not apply a monthly charge where a repayment agreement for arrears is already in place
• any payments made by customers must be first allocated to clearing the missed monthly payments, rather than to arrears charges which can be repaid later
• repossessions should always be the last resort.

In addition, firms will be obliged to record all telephone calls with customers in arrears and keep them for three years.

However, these steps are unlikely to stop the flow of repossessions likely in the future.

What few commentators are speaking about at present is that we are continuing to live with record low interest rates, but that these will inevitably have to rise soon enough. The current mortgage standard of around 4% is likely to rise to around 7%-8% and this is when the pain will really start to hit.

Not only that, but we are likely to see the general economic slowdown and rising interest rates impact the property market, dragging it down, resulting in negative equity as a real sting for many consumers with a mortgage. We’ve already seen a report of house prices falling this week, and I would expect the issue to be compounded through this year.

Filed under: Economy, Property

Recession claims misguided

A lot of interesting stories coming up today, showing the continuing turmoil in the financial world.

First up, Edmund Conway claims the recession is over, which is about as optimistic as you can get.

Much of this unfounded optimism seems focused on the fact that the property market has seen a positive bounce over this spring – mortgage lending is up, buyer enquiries are up, and the DCLG reported a 1.1% rise in house prices over April.

The problem is, spring has always been prime home buying time, so to extrapolate this into some form of economic recovery seems absurd. It really does look like a bounce, which means we should expect economic conditions to get a lot worse towards the winter – as the property market traditionally cools.

In the meantime, other economic indicators are looking increasingly adverse.

We’ve seen repeated claims that the European banks have not properly written down their losses. In the meantime, Eastern Europe looks like it could crash and drag a lot of Europe down with it through a chain reaction. Latvia is already in big trouble and could be the smoking gun to bring the rest of Eastern Europe down with it, and a number of central European banks with them. And that’s before we address the issue of existing write-downs the ECB is already severely worried about.

In the meantime, here in the UK, the whole banking sector continues to reshuffle in order to try and adapt to what still remains a crisis.

RBS is looking to split off business deals it claims as “unprofitable” into a separate group – in the meantime, as if the market hadn’t already got itself into trouble creating complex debt instruments, this is exactly what is being proposed to get the UK taxpayer money back from semi-nationalised banks such as the RBS and Lloyds Group.

Among the building societies, the government is looking to allow changes to how they fund themselves in mass markets, in order to stop a repeat of the Dunfermline Building society crash. This is not least because others, not least the West Bromwich Building Society and others are also believed to be on the brink of collapse.

The Nationwide Building Society has already raised its mortgage rates sharply this week, close on the heels of other increases in mortgage rates last month. While the Nationwide remained one of the cheapest mortgage providers around, it no longer appears to be trying to outcompete other mortgage lenders.

If anything, the entire financial world still seems to be on a downward spiral. While the potential collapse of the banking sector appears to have been averted – certainly for now – the global economic picture is anything but healthy.

Stay tuned.

Filed under: Economy, Mortgages, Property, banks, building societies, Economy, house prices, uk

Nationwide changes mortgage rate – so what?

It’s unfair to see the recent criticism of the Nationwide Building Society’s changes to its mortgage rates.

Yes, it’s unfortunate that the Nationwide will no longer be putting new borrowers on it’s existing Base Mortgage Rate (BMR), currently at 2.5% – but let’s face it, the Nationwide has been pushing harder than any other mortgage lender to continue to provide mortgages to the market.

And no other mortgage lender was even coming close to beating Nationwide’s BMR.

Despite the fact that the Royal Bank of Scotland, Halifax, Bank of Scotlant, and Loyds TSB, all have direct government support through part-privatisation.

This is not least receiving government money with the aim of improving lending to to mortgage and loans market.

And yet RBS, HBOS, and Lloyds are still charging very uncompetitive rates, as if they are making a particular effort not to lend, and instead just hoard the government’s funding.

So it’s left to a mutual like the Nationwide Building Society to offer the cheapest mortgages, the cheapest loans, and even the lowest fees on credit card use.

And then when the Nationwide finally decides it needs to move new customers onto a new higher mortgage rate – one more comparative to rates offered by Barclays and HSBC, and still cheaper than RBS, HBOS or Lloyds, some journalists think this worthy of strong criticism?

Perhaps I’m biased – I used to be a financial advisor for a living so I like to think I can recognise a quality deal, and so far that is exactly what Nationwide have been delivering on – far more than any government-supported bank.

Nationwide have been leading the market in trying to allow responsible people to borrow responsibly.

If a small increase in rates on just one of their products for just new borrowers is deserving of such criticism, then I can only wonder why these journalists haven’t been more condemning of the lousy rates being offered by traditional high street banks.

Filed under: Economy, Property, banks, Economy, loans, mortgages, nationwide building society, uk