A look back at the struggles within the economy and property market throughout 2011 creates concerns regarding the future as we move into 2012. Instead of bringing hope and promise, the New Year seems to have adopted the unpredictability and instability which characterised 2011. Quick Move Now’s summary of the housing market looks to key institutions and market indicators within the finance and house sectors to gain an insight into where the market is and where it is heading.
House Price Index Halifax -0.9% (mthly change) -16.29% (fall since peak) -1.3% (annual change)
House Price Index Nationwide -0.2% (mthly change) -11.954% (fall since peak) +1% (annual change)
CML-Mortgage Lending £12.9bn +4% (annual change)
Interest Rates 0.5%
Quick Move FTI 29.16%
Economic Growth +0.6%
Unemployment 2.62 million
*Information compiled from various sources. Quick Move Now takes no responsibility for its accuracy. Last updated 11/01 /11.
2011 was an unpredictable year for the housing market with decreasing property values and less property sales. 852,000 house sales were set to go through before the end of the year compared to the 885,000 which went through in 2010. This downward trend is expected to continue into the New Year.
For 2012, the Council of Mortgage Lenders (CML) is predicting that just 825,000 homes will be sold in the UK as “economic uncertainty will continue to deter buyers.” If these predictions materialise, house sales will be at their lowest since modern record began in 1978. The CML says that the prospects for the housing market are “highly uncertain” because negative financial news is putting homebuyers off. With buyers reluctant to proceed with purchases, another decrease in the number of house sales seems highly likely for the coming year.
The value of property decreased in 2011 and the end of the year brought even tougher conditions for home sellers. The winter months are traditionally quiet but were even quieter than expected in November and December which means that vendors may have to adjust their asking prices for the New Year to reflect the difficult situation within the market. Unfortunately, the initial feed back for January reveals that a usually busy month is getting off to a slow start – perhaps potential buyers are reluctant to commit to sales because they do not know what the year will bring and how the start of the year will pan out. Concern amongst property commentators in 2011 regarding house prices centred around unrealistic home sellers and inflated estate agent valuations so drastic changes will have to be made if the market is to stand any chance of recovery. The market cannot withstand unrealistic asking prices as well as a lack of buyers.
Many property commentators are warning that, even if fears of a housing shortage materialise, prices will not be pushed up. The boom and bust of the market is dictated by the amount lenders are willing to lend; with the average property costing more than seven times the average wage (property has been three or four times the average wage historically), the predictions are that house prices will keep falling until wages and property price are back in line. Experts are predicting that house prices will continue to fall for several years which indicates that 2012 could bring just as much uncertainty and instability as its forerunner.
Fall Through Rates
Quick Move Now’s fall through rate increased in December to 29.16%. Overall, fall through rates were higher but total sales were lower which shows that it is very difficult to find a buyer and even more difficult to keep a buyer. Fall throughs can occur for many different reasons ranging from a lack of confidence in the market and mortgage difficulties to economic problems at home and abroad. Unfortunately, all contributing factors are out of the control of the home seller: vendors are at the mercy of the market. As a business, we have a dedicated team managing the sales. Even with this experienced team in place, sale abortions are unavoidable, showing that the chance of fall through would be a lot higher for homeowners. If fall through rates continue to increase at the same rate, we could see a repeat of the beginning of last year when rates soared above 30%.
Due to the difficult economic climate, more and more people have been struggling to get on the property ladder, let alone afford their mortgage repayments and the associated costs long term. Following their recent whole sector analysis, the Financial Services Authority (FSA) reported that: almost 1 in 10 mortgage holders struggles to pay their monthly bill; up to 9.2% of all home loans have payments overdue; in the next 10 years, 1.5 million interest-only mortgages worth around £120 billion will be due for repayment but 78% of all interest-only mortgages had no reported plan for repayment. These statistics are troubling and spell further difficulties for the mortgage and property markets over the coming year. Unfortunately, mortgage difficulties became out of control and resulted in repossession for 37,000 homeowners in 2011. The CML expects repossessions to increase to 45,000 in 2012.
UK unemployment levels are at a 17-year high. From October to December 2011, unemployment increased from 2.57 million to 2.62 million. We are currently experiencing the highest unemployment rates since 1996 and the number of unemployed people is the highest since 1994.
So much job uncertainty and such high unemployment causes a lack of confidence within the housing market as many people cannot afford to buy, those needing to sell struggle to find a buyer and the few buyers who are able to proceed are reluctant to commit to sales. In December alone, the number of people claiming job seeker’s allowance increased by 5,300 to 1.6 million and experts fear that 2012 will bring further financial concerns and constraints.
It is predicted that unemployment levels will increase to 2.85 million in 2012 and the number of people in work will fall by 120,000. A change of this scale would cause even more instability, especially as youth unemployment alone stands at 1 million; if the up and coming generations cannot afford a property, there will be no buyers to stoke the bottom of the market and recreate the flow of buying and selling which is desperately needed to boost the market.
Inflation and Interest Rates
With inflation at 4.8%, many people are struggling to afford the properties they are in or reticent about buying another property. Although we have seen a slight improvement (inflation has fallen from 5.2% to 4.8% over the last few months), the Government are still a long way from achieving their 2% inflation target and don’t seem to have provided an effective strategy for meeting their aims. Banks have tried to control inflation by increasing interest rates but a recent poll showed that the number of people dissatisfied with this strategy has risen to 25%. More and more people are losing confidence in the economy, the Government and the banks and a lot more will have to be done in order to rescue the country from the prospect of another recession.
The Economy and the Cost of Living
Problems in Europe and within the UK have created difficulties in the economy which many homeowners have struggled to avoid. While wages are stagnating, the cost of living is increasing which places homeowners and potential buyers in a troublesome predicament. In 2011, we experienced increased fuel costs, higher food bills and inflated travel fares. For example, the average increase in rail fare was 5.9% with some commuters facing 11% increases on ticket prices and some season tickets costing £300 more then before. If the cost of living continues to be disproportionate to wages and the economy cannot be given a new lease of life, less and less people will be able to afford property: the number of repossessions would increase, first time buyer levels would drop and there would be less opportunity to move up the property ladder.
2011 was a difficult year for borrowers and 2012 is set to bring even more uncertainty as lenders forecast that less will be lent to home buyers this year compared to last. Lending criteria will almost certainly become even stricter which will mean that less potential buyers will be able to secure funding to purchase.
The Financial Services Authority’s (FSA’S) Mortgage Market Review states that lenders should be tougher when assessing potential borrowers: loans will only be granted if the lender is sure that the customer can repay the loan, the financial situation of potential borrowers will be studied in even more depth, income will have to be verified, greater emphasis will be placed on other regular outgoings, “fast-tracked” mortgages and self-certification mortgages will be abandoned and borrowers hoping to obtain mortgage lending which stretches past retirement age will be subject to extra “prudent and proportionate” checks.
The FSA’s proposals intend to block any return to the risky mortgage lending of previous years; the block may prevent recovery within the property market and reduce the already diminishing number of buyers able to proceed with sales. Without buyers stoking the market, stagnation and a market in decline will still be on the agenda as we move through 2012.
About Quick Move Now
Quick Move Now is the UK’s leading home purchase specialist, purchasing houses for cash, often with 7 days, for those people needing a quick and certain house sale.