UK housing market ‘on its knees’, says Rightmove

Source : Business Times - 23 Sep 2008

Properties may see more weakness: BOE chief economist

UK house prices fell for a fourth month in September as the global credit crisis intensified, locking out homebuyers and forcing the sale of the country’s biggest mortgage lender, a report by Rightmove plc showed.

‘The housing market is on its knees and will remain so until financial institutions address the disastrous state of the mortgage funding markets,’ said Miles Shipside, commercial director at Rightmove.

‘While this market provides a good opportunity to trade up, it requires a degree of bravery.’

The average asking price for a home fell one per cent from last month to £227,438 (S$595,559), Britain’s most-used property website said yesterday. From a year earlier, prices fell 3.3 per cent.

The property market may face further weakness in coming months, provoking ‘painful’ adjustments for many families, Bank of England chief economist Spencer Dale said last week.

HBOS plc agreed to a takeover by Lloyds TSB Group plc after plunging home values and the financial market crisis destroyed the value of the company and added to the threat of a recession.

Prices dropped the most in the East Midlands, where they fell 5.3 per cent this month, and values declined 3.9 per cent in the south-west, Rightmove said. In London, house prices rose 4 per cent this month after a 5.3 per cent drop last month.

Lenders are reeling from higher borrowing costs in interbank lending on concerns about losses stemming from the collapse of the US housing market.

The US Treasury last week announced a US$700 billion plan to buy troubled assets and avert a financial meltdown. The pound rose against the dollar yesterday, trading at US$1.8439 as of 8.49am in London. The currency has still fallen 7 per cent since the beginning of last month.

The UK economy entered a recession in July, forecasts by the Confederation of British Industry, the country’s largest business lobby, show.

Growth stalled in the second quarter, ending the longest period of uninterrupted economic expansion in more than a century.

Prime Minister Gordon Brown suspended the tax on home purchases of less than £175,000 this month. Still, the number of new listings per estate agent fell to a record low, Rightmove said.

‘The changes in stamp duty are just tinkering at the edge of the system,’ Mr Shipside said. ‘At best they will give slightly more choice to first-time buyers.’

Commercial property derivative prices suggest that commercial property values will continue to fall until 2010 as concerns about the UK economy blunt demand, the Bank of England said in its quarterly bulletin published yesterday.

Other residential housing data also show that the slump has deepened. Home sales plunged to a 30-year record low last month, the Royal Institution of Chartered Surveyors said on Sept 9. Prices fell by the most in a quarter century, HBOS said on Sept 4.

Bank of England policy makers said that they are still concerned the fastest inflation in a decade will become embedded in the economy, making them more reluctant to lower interest rates, minutes of this month’s meeting showed.

They voted 8-1 to keep the rate at 5 per cent, with David Blanchflower voting for the biggest reduction since the Sept-11 attacks and Timothy Besley abandoning a push for higher rates.