Confidence remains stumbling block for house price recovery

Latest data from Chesterton Humberts/cebr November House Price Poll of Polls shows Northern Ireland, neighbour of the latest eurozone country to be bailed-out, has seen prices fall by more than a third since 2007.

The Bank of England recently made its strongest claim to date that the fall in lending, which has been associated with much of the decline in property prices over the last six months, is due to banks making it harder and more expensive to borrow.

Residential property prices have fallen in each of the last three months following a strong start to the recovery last year. The rise in interest rate spreads faced by new borrowers, suggests the central bank, means that it is supply of, rather than demand for, loans which is driving net lending downwards every month.

This is in contrast to claims made by lenders, who have argued that businesses are not confident enough about the strength of the recovery to want to borrow.

The real picture of blame probably involves a mixture of the two positions with neither the Bank of England nor the government being able to avoid its own fair allocation. Greater competition between lenders is required to force down spreads and fees and put the housing market recovery back on track. But likewise, the Bank of England should resume its programme of asset purchases so that financial institutions can restore their balance sheets with newly acquired government debt, thus avoiding the need to charge excessive fees to customers

Robert Bartlett, Chesterton Humberts’ CEO, comments:

“The picture this month has changed very little since September.  While transactions levels are normally slow in December, the slowdown came earlier this year and the concern is that it may last longer as borrowing levels look set to remain very low into the New Year. 

“While the Chesterton Humberts/CEBR House Price Poll of Polls shows a slight dip in house prices, there is no sign of any dramatic downturn in values.  We see a very static market next year with little overall movement in house prices across the next 12 months.

“However, we are still seeing a number of transactions across all our offices as a result of more realistic expectations from vendors who are keen to sell. Accurate market pricing is essential in order to attract interest.” 

Douglas McWilliams, Chief Executive of CEBR, comments:

“This quarter has seen a sharp decline in confidence compared with the previous quarter and that remains a major stumbling block for the recovery in house prices. Difficulty accessing credit remains an issue for potential homeowners and all past studies show that after a financial sector led recession it takes much longer than usual for lending and economic activity to return than other recessions. Greater competition between lenders is required to force down spreads and fees and put the housing market recovery back on track. But the Bank of England could help lenders restore their balance sheets without charging excessive fees to customers by restarting its quantitative easing programme in the New Year.”

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