Report Warns of a House Price Crash

by Mark Johnston

The Bank of England has released figures that show a large drop in mortgage lending. The figures reveal that net lending has plummeted from %18 million in June to just £86 million in July. Net lending is the totally UK mortgage market with repayments and redemptions taken out.

The shock figures are one of the lowest figures since the UK central Bank started to record figures back in 1993. Analysts are now warning of a further slump as banks and building societies tighten their lending criteria amidst pressure from Government to sure up their balance sheets and protect themselves from the type of risk that saw many financial institutions failing during and after the recent crisis.

Andrew Goodwin, a senior economic adviser to the Ernst & Young ITEM Club, said: “The housing market is heading for a double dip, with net mortgage lending pretty much flat and the number of mortgage approvals remaining very low. These figures tend to be well correlated with prices and they point to falling prices over the second half of this year, particularly now that the supply shortages of the early part of the year have eased.”

Howard Archer, an economist said: “It is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people’s pockets and lead to serious job losses in the public sector.”

The Bank of England is looking to regulate the mortgage market by capping borrowing to avoid a repeat of the financial crisis that nearly brought the industry to its knees. The plans will force borrowers to have at least a 10 to 25 percent deposit in place  to be able to apply for a mortgage. Although this may well protect the banks and building societies it will strangle the hosuing market as finance will dry up for first time buyers as they will not be able to raise the deposits requires given that average house prices are well over £150,000.

Vicky Redwood, of Capital Economics, said: “The news on the UK housing market doesn’t get any better … The best that can be said is that approvals didn’t fall further.”

The figures showed that the number of mortgage approvals were around 48,500 in June while they increased slightly in July to 48,722 .

Alan Clarke, economist at LBNP Paribas, said: “Mortgage approvals moved sideways on the month, which is essentially what has been happening all year … It suggests housing is going nowhere fast.”

The news is concerning to home owners who bought their houses at the height of the property boom a few years ago. reported that buy to let landlords would have to wait up to four years before they would come out of negative equity and be able to recover what they paid, the new report shows that this may be the same for normal home owners too.

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