UK Housing Crash Has Ended
Recommended by Tony Booth
Good news indeed. But before we all crack open the champagne … this statement comes from Britain’s largest bank, HSBC, who seem intent on rallying homebuyers to rush into applying for one of their new range of mortgages. From my point of view, the statement actually confirms only one thing: that HSBC have failed to learn anything from the housing market crisis that struck down institutional property investors, individuals and businesses; and those banks that made everything that much worse by supplying high-risk loans in the first place.
HSBC has pledged to lend a whopping £500m more to those that apply for a 90 per cent mortgage. The promise came partnered with an extraordinarily optimistic statement saying the ‘housing crash is over’, when most of us know this is very unlikely to be the case. The best we can really say is that the crisis is reaching the bottom and there may be some signs of recovery starting in some regions of the UK. But some areas are more likely to see further price falls throughout the remainder of this year and well into the first quarter of 2010. Other more pessimistic commentators are suggesting we have at least another two or three years of reducing or stagnating prices, before any sign of consistent recovery will be seen.
My concern is that banks may return to the bad old days of lending too much to those least able to meet the repayment obligation. The one good thing that came out of the housing and financial crisis and the recession that followed, was that banks seemed to recognise they were partly responsible and that they had, for the most part, made themselves extremely vulnerable by supplying loans to a high-risk volume of borrowers. Borrowers were also forced to realise that if they wanted a mortgage, they had to first save up enough to pay a reasonable upfront deposit. The swing back to providing 90 per cent mortgages puts HSBC back in the front line for first-time buyers, but it also arouses suspicion amongst people like me that they may be returning to the bad old ways of over-lending.
I also doubt whether this particular juncture along the road to housing market recovery is the right one to stick a ‘come and get it’ sign to attract would-be house buyers. The market is far from recovery and prices are, at best, fluttering just above stagnation. If values fall again during the rest of this year and into next year by the 10 to 15 per cent some predict, then those taking out a new 90 per cent mortgage could face negative equity within a year.
The withdrawal of 90 per cent loans from the whole of the UK market followed the onset of the credit crunch. Just before everything went pear-shaped in mid-2007, there were over 900 90 per cent mortgage products available. By the start of 2009, the volume fell to 122 products and just one month ago, there were a mere 101 products surviving. HSBC may be confident that house prices are going to rise, which undoubtedly prompted this decision – but it’s a risk, both to the bank and to those customers that take advantage of it.
HSBC may have kick-started a premature mortgage supply revival at this dangerous end of the market, because there are already whispers that Lloyds and the Halifax will soon be offering similar high loan-to-value products. The real question is: as lenders begin competing against each other for a relatively small volume of buyers brave enough to re-enter the fray, will they push the boundaries higher and higher until we are back to 100 per cent mortgage provision – and all the problems that scenario delivered over the last two years?
Land Registry data released for August shows a flat market (in fact, there was a monthly house price change of just –0.1 per cent). The average house price in England and Wales now stands at £155,968, which is down 9.4 per cent over the year. This compares with a market high of £184,090 in 2007. This means there is a hell of a long way to go before prices reach the values they were at two years ago, and with stagnation being the current trend, no one is going to make significant capital returns for some years to come (unless they buy at substantially below current market value).
The volume of house sales is increasing, which gives us all a glimmer of hope that normality is waiting for us somewhere around the next bend. But is HSBC trying to get there too quickly? Let’s face it, we all know what happens when you drive towards a bend too fast. Fingers crossed, they’ll find the brakes before they crash (again).
- UK Property Market is Back in Business
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