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Green shoots in the housing market?

House prices have dropped, interest rates are low and plenty of people are straining at the leash to get on the housing ladder.

Now the Nationwide Building Society says house prices have risen for the first time since October 2007. 

The Nationwide cautioned about jumping to conclusions on the basis of one month’s figures but the news was enough to send the pound up against the dollar and some analysts said it was more evidence that the battered housing market may be recovering. 

On the other hand mortgages have become much harder to get and rising unemployment is working against any recovery.

What do you think? Is it premature to start talking of green shoots in housing?

from The Great Debate UK:

Deflation? It’s inflation you need to watch

-- David Kuo is a director at the financial Web site The Motley Fool. The views expressed are his own. --

What are consumers supposed to make of the latest inflation numbers? Do we have inflation, deflation or a bit of stagflation?

Truth is, it depends on who you are and what you do with your money. The Retail Prices Index or RPI tells us that prices today are exactly the same as they were a year ago. The Office for National Statistics reported that RPI was unchanged at 0%.

But be very careful when bandying around the term “prices”. The RPI includes elements of housing costs. So it is better to talk about the cost of living rather than prices. Prices have risen compared to a year ago, but the total cost of living as measured by RPI has fallen because of the disproportionately large drop in mortgage costs as a result of lower interest rates.

The proof, if proof was needed, that prices have risen from a year ago, can be seen from the Consumer Prices Index (CPI). Instead of 0%, as measured by the RPI, prices as measured by the CPI are 3.2% higher. The CPI does not include housing costs, so it is a better measure for people on fixed-rate mortgage deals, and also for people in rented accommodation.

The upshot is that if you have taken on mortgage debt and chosen to spend rather than save, then you are worse off as a result.

However, it’s worth bearing in mind that both the RPI and CPI are broad measures of inflation. Consequently, the extremely large basket that is used to gauge inflation may not necessarily reflect the true changes in the cost of living that you may experience. Put another way, if we don’t buy exactly the same things that the ONS puts into its basket then we will experience a different rate of inflation.

Web round-up: Reaction to FSA’s bank regulation proposals

The Financial Services Authority (FSA) has published a blueprint for a shake-up of global banking regulations aimed at preventing a repeat of the current financial crisis. The report, authored by FSA Chairman Adair Turner, recommends an increase in banks’ minimum capital requirements, closer regulation of hedge funds as well as proposals to stop banks lending too much during boom years and measures to restrict the ability of banks to take excessive risks.

The report comes a week after FSA Chief Executive Hector Sants said in a speech at Thomson Reuters London offices that the banking sector should be “very frightened” of the regulator.

Here is a quick round-up of how the FSA’s blueprint has been received across the web.

Robert Peston, the BBC’s Business Editor, writes on his blog that much of what the FSA Chairman said was “common sense” and that “some of its gleaming new rules would in fact represent a return to a framework for limiting risk-taking by banks that prevailed until comparatively recently.”

There was also a good discussion about the FSA and international banking regulation on this morning’s Today programme on BBC4, which you can listen to here if you missed it.

Over on the Telegraph, meanwhile, Simon Denham comments that: “The new “aggressive” stance from the FSA is a legitimate reaction to the howls of outrage – some justified and others totally misplaced – about the moral and managerial turpitude within the City.

“But it remains to be seen how this will translate into action. The worst case scenario would be for regulation to become unduly cumbersome, slow the mechanisms of the City and hinder any wider recovery for the economy. That said… Lord Turner’s report is a golden opportunity for the regulator to really get behind financial services.”

Web round-up: More gloom and doom on house prices

There was more gloomy news for the housing market today as property website Rightmove announced that asking prices for houses in England and Wales were 9 percent lower than a year ago. New listings meanwhile were 57 percent lower than March 2008. The average asking price actually increased by 0.9 percent between February and March this year, but Rightmove warned that this was caused by new sellers being unrealistic about how much their homes are worth.

So what can be done to revive the stagnant housing market? Citywire has one radical suggestion: make sellers pay stamp duty rather than the buyers. Every year there are calls to abolish or reform this “flawed tax”, but Citywire’s Lorna Bourke says that making this switch would be an incentive to first-time buyers and would cost the government nothing. What sellers would say about this, however, is another story.

Citywire also comments on the recent report by Numis Securities in which they said that house prices could have another 40-55 percent to fall before bottoming out. Ouch. David Smith, writing in this weekend’s The Sunday Times, dismissed this report as “unconvincing.” Smith writes that the chances of the average house price in the UK slipping to £66,000 from the current £150,000 are slim, especially as interest in the market and new buyer inquiries are rising.

The Numis report predicting the rather frightening fall in house prices has sparked a great deal of debate on the web; it is the most commented on article on thisismoney.co.uk.

Even if you did want to buy, what are your chances of securing a mortgage? Not good, according to Rupert Jones writing in the Observer. Fewer than 9,000 first-time buyers were able to take out a home loan during January and the average first-timer’s deposit was a new high of 24 percent of the value of the property. So while buyer inquiries may indeed be on the up, raising the finance to actually buy a property is becoming harder and harder.

And it could be about to get even more difficult. Telegraph.co.uk reports that home buyers could be prevented from borrowing more than three times their annual salaries under new mortgage rules to be announced by the Financial Services Authority.

All of which raises a number of important questions about you and your home. Is it a good time to sell or buy? Would you be better off renting? What sort of mortgage should you apply for? Thankfully, there are a number of great tools on the web to help you decide.

UK mortgages: “It’s not all doom and gloom”

– Jane King is an independent mortgage adviser at Ash-Ridge Asset Management. The views expressed are her own. –

In the current climate, we have the irony of property suddenly becoming more affordable and yet lending is down by 52 percent in the year to January. The commonly held view is that it is almost impossible to get a mortgage and many first-time buyers are still frustrated in their efforts to get on the ladder. But it’s not all doom and gloom.

Firstly, there are providers with funds who want to lend. What they don’t want is the sub-prime type of borrower that got many banks into trouble in the first place, and this is set to be the long term approach of many who decide to remain in this market. This will be good for future stability and something that should be encouraged.

Anyone seriously looking to purchase or remortgage should take independent advice from a properly qualified mortgage adviser (try www.impartial.co.uk). First meetings are usually free of charge.

For first-time buyers and key workers there are government-funded schemes available, which are not widely advertised but are incredibly popular. The criteria and flexibility have widened in recent times and the schemes now encompass many individuals who would not have qualified in the past.

For key workers such as policeman and nurses and other eligible groups there are Shared Equity Schemes whereby you purchase part of your property and rent the remaining portion.

Try your local housing association in the first instance – they will let you know what properties are available and will advise as to your eligibility. An independent mortgage adviser will have access to the lenders who provide the mortgages for these shared equity loans and will be able to find you the best deal for you. I cannot recommend these schemes highly enough and as new funding is often released in April, the timing could not be better. For information about housing associations try Directgov.

Rate cut round-up: “policy mistake” or “confidence boost”?

The Bank of England’s decision to cut interest rates to a record low of 1.0 percent may have been widely predicted, but this did little to hold back the avalanche of commentary that began the moment the news came through at noon today.

Interest rates, which have now been cut five months in a row, are at the lowest level in the Bank’s 315-year history, and the list of people calling yet another easing pointless appeared to be getting longer.

Economist Ros Altman, writing on www.theguardian.co.uk, said: “This is another policy mistake. More panic cuts are not the answer to our economic crisis. Policymakers are desperately trying to boost the flagging economy and encourage more spending… but lower rates are a very crude weapon. They punish those who have got money to spend while benefiting the very groups (banks in particular) whose actions caused the mess in the first place.”

She wasn’t alone. BBC blogger Stephanie Flanders wrote: “It is hurting. But so far it isn’t working… Savers say they are being punished for nothing – rate cuts are hitting their income, while having less and less impact on the economy at large. They have a point.”

Meanwhile, Melanie Bien, of mortgage brokers Savills Private Finance, was quoted in several publications as saying: “Today’s cut was expected by the markets. It will assist those on base-rate trackers with no collars or standard variable rates if those lenders pass on any of the cut. But beyond that it will have little effect.”

The Sun didn’t hold back either, calling the rate cut a “desperate attempt to revive the flagging housing market” while The Daily Mail website said the MPC was “going for broke”.

Are interest rates at one percent the answer?

The Bank of England has gone into further into uncharted territory with its decision to cut rates by half a point to just one percent. Many economists think they will be down to zero by the Spring.

But like gunfighter running out of bullets, the Bank is, in the view of some observers, just wasting ammunition by using the interest rate weapon.

The problem lies, they say, in the availability of credit, not the price of it. What use is a nice cheap loan on a house if a bank is demanding a whopping 25 percent deposit?

Do you think the Bank of England could do more to stimulate confidence and get credit flowing again — and if so, what could the central bank or the government do?

Banks rescue package: will they start lending again?

Melanie Bien, director, Savills Private Finance, is a guest commentator. The opinions expressed in this commentary are her own.

It is too early to say whether the latest bank rescue plan will have the desired effect of persuading the banks to start lending again. But it is a step in the right direction and we welcome it as a positive move as it may just remove the remaining stumbling blocks to getting the credit and mortgage markets functioning properly once more. Clearly, something further had to be done. October’s £37bn bank recapitalisation did little to persuade banks to regain their appetite for lending. Credit continues to be difficult to come by – unless you have a large deposit or equity in your home and a clean credit history.

The latest bailout aims to guarantee lending and insure banks’ bad debts, such as sub-prime lending in the US. The idea is that banks won’t need to hold back vast sums in case of default on loans – something they have been doing until now. What is particularly encouraging is that this is a comprehensive package of measures which taken together is likely to have more of an impact on increasing new lending than addressing one area at a time.

The new £100bn mortgage guarantee scheme to underwrite lending between banks and financial institutions as recommended in Sir James Crosby’s report, is perhaps the most significant development. Before the credit crunch hit, the securitisation market was a key source of funding for the mortgage market, responsible for a third of all lending. This scheme should help rejuvenate the securitisation market, which has all but closed.

There is a danger that it may prove to be too restrictive, however, as only AAA-rated securities are covered. Much also depends on how honest the banks are about their exposure to bad debt. A fee-based insurance scheme whereby the Treasury and banks will identify bad loans  or toxic debts that will ultimately be covered by the taxpayer should remove some of the blockages in the system that are preventing the flow of mortgage lending. But without an honest and open declaration of exposure by all the banks, it will be very difficult to draw a line under what has gone before and start afresh.

The extension to the £250bn credit guarantee scheme announced in October until the end of this year should also have a positive impact, allowing banks and building societies to roll over new debt, as should the new liquidity scheme to replace the Special Liquidity Scheme allowing banks to swap illiquid assets for gilts.

The change in strategy with Northern Rock is interesting. Instead of encouraging the lender to run down its business and shrink its mortgage book, the government has changed tack. The bank will now encourage existing customers to stay, presumably with more attractive reversion deals. It will also look to attract new borrowers – hopefully those purchasing, not just remortgaging, with more attractive rates.

from The Great Debate UK:

Britain faces recession without housing ATM

James Saft is a Reuters columnist. The opinions expressed are his own.

Even in the good times, many British consumers were borrowing against their houses just to fund routine consumption, indicating a big hit to come for retail sales and for the banks who hold the loans.

With house prices falling rapidly and mortgage debt tougher to get, it is no surprise that homeowners are less able and inclined to borrow against their houses in order to spend.

That will be hitting the High Street now - analysts are expecting a 0.6 percent fall on the month in retail sales for November when data are released later this week. But a rise in unemployment next year could expose a really serious weakness in household finances, as consumers who counted on being able to extract wealth from their houses to smooth consumption in bad times find that, when bad times come, the wealth isn't there and the banks don't want to lend anyway.

Researchers at Durham University looking at survey data found that 37 percent of homeowners borrowed against their house between 2002 and 2005, typically realising about 6,000 pounds. That's a lot people borrowing a lot of money against very illiquid and now hard to realise assets.

Even more interesting is the pattern of what householders were doing with the money and what was happening to them when they decided to borrow. Over time the proportion of people borrowing to re-invest in their houses through improvements fell, while more was finding its way into day-to-day costs, according to Susan J. Smith, a professor at Durham and one of the authors of the study.

This was borne out by a high percentage of equity borrowers who had lost their jobs, become pregnant or had a child in the year they borrowed.