Lloyds Banking Group, which is 41% owned by taxpayers, has said it is concerned about the housing market.
Lloyds expects a 2% drop in house prices this year, together with a rise in bad mortgages. The bank lends one in five of all mortgages in the UK.
The group’s share of the mortgage market shrunk by 2% last year, as the bank lent less.
New lending was £30bn, including £5bn for first-time buyers, compared with a total of £34.7bn the year before.
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Comments
PeeBee - Interesting to learn of your own situation re offspring trying to buy a property. That does give you an insight into various views.
As AceOfSpades has kindly pointed out, I've said on EAT before that I don't see all these mysterious wannabe BTLers waiting in the wings to snap up property.
As a hedge against inflation, property has been a poor investment in three of the last four years (actually, according to yesterday's Land Reg data, UK house prices are now in nominal terms the same as Q4 2003 - so much for them doubling every seven years! This is even before inflation has been factored in). Why would canny investors buy into an asset that is depreciating in real terms?
If there are such canny investors with cash out there, why didn't they already invest that in property in the build up to 2007? They can't be that shrewd if they sat out some of the biggest % increases in UK house prices!
Furthermore, how would people know when and where the bottom of the market is? House prices in the US briefly stopped falling at the end of 2009, then resumed their decline in 2010.
As more vendors hold out for higher prices, they are opting to rent their properties instead. In much of the UK, this is likely to depress already low rental yields. Once mortgage interest rate payments, void periods and maintenance are factored in, I would be surprised if many BTL landlords are earning more than they could if that money was sitting in an online savings account (I'm currently getting 2.3% after tax with my online saver - less than inflation I know, but I prefer risk free, assuming the bank doesn't go bust!)
Finally, the sentiment now in regard to house prices would appear to be very different than in the years before 2007. Amateur BTL speculators are not being exposed to anywhere near the same media volume of house prices being the path to riches.
The smart money moved out of property in 2007 and into gold. The really smart money moved out of gold last year and into precious metals - not that I'm invested in either of those!
rantnrave: You raise a very good point there. Desire vs. demand. I'll be honest and say I'd never really thought that way before - but in essence the demand is all that matters to drive forward a market - and all that sellers and Agents are interested in, I would suggest.
Whether the 'demand' is directly proportionate to the 'desire' is a bigger question, do you agree? If the desire to own stopped, then there would be no demand. As it is evident that EVERY HPCer has a desire (why otherwise be associated?) then a proportion of them will add to the demand for property. I am sure you will agree that some on HPC will no doubt be BTL investors hoping to jump on your bandwagon in order to get some good deals should your crusade actually succeed...
Remember, THESE people are those that both AoS and I have been warning about for too long now. The ones who would, I guarantee, step into the breaches and snap up the best properties as soon as prices moved significantly downward, leaving you all in exactly the same situation you are curerently in I am afraid. Mark my words - it WOULD happen. Stand in the moccasins of the investor for a minute - what would YOU do?
"I think you are not acknowledging the increasing number of younger people though who view current house prices, shrug their shoulders and say they are not willing to put themselves in that much debt." R'n'r - not only do I acknowledge them... I am FATHER to two of them! Only it is inability, rather than unwillingness, in their cases. They would dearly love to own their own property - two more instances of 'desire', but have little or no chance of fulfilling the desire so do not add to the 'demand'. I would dearly love them to own their own properties - unfortunately THIS BoMaD is dependent upon funding that is not yet available (despite religiously buying the tickets week on week...!). I would happily see MY home halve in value in order for them to buy something - but that is for selfish reasons. The reality is that it would simply start the cycle afresh. Of course, some would benefit... but the end result, I believe - right back to where we are now.
PeeBee - I think you've somewhat missed the irony in my last post, that if house prices are set only by demand and supply, then how do you explain the big swings that I identified. Clearly there are other factors at work too
I'm also pondering whether you have 'desire' and 'demand' confused. As is often posted on EAT, the opportunity to buy a house is not a right. Similarly, I want a flashy sports car, but I don't have the right to it.
When I see such a sports car in a showroom window, I desire to own that car, for sure. Then I look at the price tag, and reality sets in. Does that mean I have pent-up demand for that sports car? Not at all. If I had that amount of money, I would certainly not spend it on such an item.
And that is how many potential FTBs feel. There is a huge amount of pent-up desire to own a house, for sure. How much demand is there at current prices? A lot less. There are some FTBs who would rush out and buy whatever property the banks would loan them for. I think you are not acknowledging the increasing number of younger people though who view current house prices, shrug their shoulders and say they are not willing to put themselves in that much debt.
only one thing to say "Pass it on you Bankers"
rantnrave: I know you are agreeing with me - you had little other choice. mon ami! ;0)
"I am however disappointed to see you advocating the supply and demand argument for what has happened to UK house prices. Going by this, house prices fell some 20% in 2008 because one in five people left the country!
Can it really be said that UK house prices trebled since the mid 1990s because the population also trebled? Or are you suggesting that 2/3 of the UK housing stock was wiped out in some freak of nature during the last 15 years?"
See - this is where I have said many times before that ALL HPC-type arguments fall flat on their faces. There is a fatal flaw here - an apparent fundamental failure to understand or appreciate what makes the housing market tick.
NO-ONE said anything about a population explosion; NO-ONE suggested a mass exodus of potential homebuyers to far-off climes, so I shudder to think where you get the above notions from. We simply talk about SUPPLY and DEMAND. Demand takes many forms; and has many drivers behind it. One person may simply wish to own one house as their principal residence; another may wish to be the next Fergus Wilson and stick 900-odd units in his portfolio. Both have a demand for property which needs to be satisfied.
More's to the point, r'n'r; NO-ONE can control this demand. Banks can control availability of finance to a degree, but the long and short of it is that is where they make a good chunk of their money so they will never stem the flow completely. In any event, cutting off funding will not kill demand.
Don't forget, much of banks' (...and bankers!) wealth is tied up in property. They don't have to draw down on it today; just the same as they don't have to sell the shares they bought in 2004 and subsequently took a nosedive in 2008/9. One day, they will be worth selling again.
Take away the banks, the businesses, and you are dealing with human emotions; whims and wants. No science; no statistics - just the I WANT FACTOR. In fact even the banks and businesses involvement is motivated by the knowledge that it is the human factor which drives the process continually.
Here's a direct comparison that doesn't involve nations - I've even tried to remove the slightest trace of sexist innuendo!:
if a woman(or man) wants THAT ring, then the man (or woman) in his/her life better get out and buy it if he/she knows what's good for him/her (or WANTS what's good for him/her... ;0) ) REGARDLESS of the price of 18-carat gold and diamonds! Jeweller sells that ring - the next one comes out on sale at either the same price - or even dearer!
THAT'S what drives the housing market.
The biggest driver for house prices is availablity of credit - and human nature. You only need to look across the water to Ireland to see what happens when credit is too freely available. This is a country with a population of only 4 million, in which the rate of new homes built exceeded 9 times that rate of new builds in the uk at the height of the boom (adjusted for population). The rate of house price inflation in Ireland was much greater than the uk at the height of the boom. Why? Was there was a shortage of housing? I think not . The answer is that every man and his dog worked out that in a rising market, the more leveraged you are, the more profit you make. However as the Irish are now finding out, in a falling market, the more leveraged you are, the greater your losses.
PeeBee - I'm agreeing with you that no two countries are the same, so there will never be a perfect comparison. If you want to take that as weakening my own argument, then go ahead.
I am however disappointed to see you advocating the supply and demand argument for what has happened to UK house prices. Going by this, house prices fell some 20% in 2008 because one in five people left the country!
Can it really be said that UK house prices trebled since the mid 1990s because the population also trebled? Or are you suggesting that 2/3 of the UK housing stock was wiped out in some freak of nature during the last 15 years?
rantnrave: "PeeBee - there are few countries that you could make a direct comprison with really since all will be different. "
Yup - but I remind you that it was YOU who made the initial comparison, not ME!
Don't make comparisons. What happens in Germany is different to the USA; is different to Japan - ALL different to the UK.
Take the Florida homes market as an instance. What could you possibly directly compare that to? The Brighton Beach Huts market maybe? Both have had similar crazy rises - and falls, as supply and demand went one way then the other. But we are talking four bed villas with pools vs 4x4 wooden huts with bunting. Hardly like for like...
In this instance, r'n'r, I am afraid you weakened your own stance - I didn't have to type a word.
Interesting one this.
Depends on whether you’re a half full or half empty type of person.
Are the banks in trouble? I think the problem is that the banks are doing very well without their mortgage books. With interest so low why would they bother?
If it was true that the biggest driving factor was availability of credit then the market would be going down quicker than it is. ‘2% over the next year’. This has got to be bad news for the crash believers where as I think its great news, a bit of good marketing will soon overcome a paltry 2% and supply and demand will see to the rest.
PeeBee - there are few countries that you could make a direct comprison with really since all will be different.
Japan is mostly covered in mountains. They had a period of unprecedented house price increases that were anything but sustained. Supply and demand didn't seem to make much difference there.
I would suggest that the biggest driver of house prices is the availability of credit. That availability was growing rapidly up to the end of 2007 and house prices rose accordingly
Banks in this country are now in serious financial trouble and are due to start repaying their government bailouts either this year or early next. They dont have the appetite to lend at the levels they were up to 2007. Logic dictates that house prices will adjust accordingly. This process started in 2008, until record low interest rates were applied. I believe it is picking up speed again.
rantnrave: Comparing Germany and the UK is a little like comparing Marmite and honey.
Germany: 357000sq.km; population 82 million;
England/Scotland/Wales: 230000sq.km; pop 59.2 million
(all figures from same source & all 2009 figures)
UK has MORE PEOPLE per square anything. Therefore there is less opportunity for property; less available land to site properties on; and less chance of overspilling into the next country to find extra space (although the last couple of times that happened we called them "Wars"... ;0) ).
Take all the stats you want - supply and demand is the ONLY indicator. And at the minute the demand is running at a rate of 55,000 per month, if you think about it...
Norhern Rock have anounced a range of 90% mortgage deals today - surely this is good news for FTB's
I am selling in all price ranges, 5% here or there in terms of figures achieved against last year
Low number of buyers, low number of sellers, and no new build to speak of
With 90% deals as standard I think we will see business and prices as they are now for maybe five years, so long as the BOE does not get over excited and put the base rate up too early
AceofSpades - Not sure where you've got the idea that I am dreaming of 'dangerously low prices'?
What, in your opinion, would constitute 'dangerously low'? Lets take the example of Germany, where house prices are considerably less than the UK and prices increased nowhere near as rapidly during the last decade as they did in numerous other countries.
Germany has long since exited recession and its economy is growing quickly. Banks there have money that they lend to businesses, which in turn spur economic development and create jobs. In the UK, considerably more 'wealth' is tied up in values attached to economically unproductive bricks and mortar and banks are being criticised for the lack of money they lend to small and medium enterprises.
Consumers in Germany spend significantly less on housing costs (I know, I lived there for two and a half years). That extra disposable income is again spent in the economy, which further creates jobs.
Of course, it could be argued that when people in the UK move houses, they spend extra money on new furniture etc. That would no doubt be money spent at famous British chains with traditionally British names like... Ikea.
I could go on here, but as you point out, these are issues I have raised on EAT before - who these people are that have lots of money now to buy houses that isn't already invested in property, why they would invest in an asset that is currently falling in value when they don't know where the bottom of the market is...
It's the same conversation everytime with you Ranty.
If prices did drop dangerously low as you dream, FTB's would not get a look in.
Aceofspades - alot of FTB could no doubt afford mortgage payments if they could raise the needed deposits. Will that still apply when the current record low interest rates go up, as they will?
There is much talk on EAT about pent-up demand. I reckon there's a stack of pent-up supply out there too, re accidental landlords etc. How many potential sellers have been holding back from the market, waiting for 2007 prices to return? As that outcome looks increasingly unlikely in both the short and medium term, when will they decide to call it a day and sell up? A sustained period of falling HPs, as we are now entering, may see a rush to market...
Thousands of houses are selling each month.
The recession has hit most industries all over the globe.
While thouands of properties continue to sell, this wish for a house price crash is not on the cards. Why should/would it be?
I'm seeing more and more people who could comfortably afford their required mortgage, who have a good deposit, but still are not being approved.
As soon as these buyers are given the green light to go ahead, we'll see a substantial % added to the thousands of properties already being sold per month.
For every HPC dreamer, there are many people who are wanting to buy (at today's prices) but can't get a mortgage approval (depsite being a far better candidate than many who got mortgages in 2006/2007)
If houses were not selling, THEN prices would come falling down. However, the industry has already adjusted to the lower level of transactions, just like every other affected industry.
@ F Fortescue-Smyth
....The sooner we as a profession realise that lower prices are our salvation, the better....'.
What about the 'salvation' for those individuals who actually OWN (mortgaged or not) the home that you want them to lose money on for YOUR personal beneifit? There is much more to this than your own welfare!
"The sooner we as a profession realise that lower prices are our salvation, the better."
Spoken like a true corporate. You and Realising Reality better get on with it, then.
Don't worry about that pesky Estate Agents Act. The bit about working in your clients' best interests doesn't mean anything really...
I played golf in a three ball that contained a banker on Saturday morning
By the eighteenth hole we were only a two ball.
One of the bunkers on the 15th was marked ground under repair
It has a banker shaped mound in the middle of it
2%? That's a rounding error. I suspect it will be rather more than that. Indeed, it needs to be to unblock things. I'm taking bets at 10% upwards.
The sooner we as a profession realise that lower prices are our salvation, the better. (And it is, for the vast majority of us, save perhaps those individuals amongst us who, ahem, filled their boots with rental property).
As for banks well clearly LBG don't want such a massive write-down of their mortgage book but tough, they (and other banks) caused this mess with irresponsible lending and they should bear their share of the pain.
I suppose it's only fair - those involved in the housing market have been expressing grave concerns over the banking industry for years - especially when the 'silly bankers' were trying to run Estate Agencies... ;0)
Guess what, we are in a recession! Tell us something we don't already know.