There was some good news for the UK housing market’s cheerleaders yesterday.
In August, the number of loans agreed for UK house purchases rose to 52,410. That was up from 49,644 in July. If more mortgages are being approved, that normally means greater demand for property.
Meanwhile, the average UK house price nudged higher by 0.1% in September following a 0.6% drop last month. Prices are still down year-on-year, but the fall has been cut to just 0.3%.
So are things looking up? As you might have guessed, we don’t think so. And it’s not just us.
Now the ‘insiders’ want out of the property market.
Mortgage approvals aren’t as good as they look
The pick-up in mortgage approvals last month was a bit of a surprise. The financial world has been pretty miserable recently. Yet in Britain, more people have decided they want to buy a house. It suggests surprising confidence despite the prevailing gloom.
But when you look at the details more closely, the latest set of mortgage approvals are nowhere near as bullish as they first appear. You can see what I mean from this chart.
Despite last month’s recovery in the number of mortgages agreed, this is no higher than two years ago. And it’s 60% lower than at the peak of the market in November 2006. In fact, at this level of approvals in the past, house prices have normally been falling.
So there’s nothing much to shout about here. And that’s confirmed when you look at the actual amounts of money lent. The Bank of England’s data on ‘total lending secured on dwellings’ – ie mortgages – shows that over the last year, this has risen by just 0.6%. And growth slowed over the last quarter: the three-month annualised growth rate was just 0.4%, down from 0.5% last quarter.
Compare that with the 16% annual increases of four years ago. In short, total lending in the housing market has slowed to a snail’s pace. And this could be as good as it gets.
The economic outlook has been clouding over for months. Pay packets have been growing slower than the cost of living. This is putting the squeeze on consumers. People are being forced to pay more for essentials like food and fuel. So the amount of spare cash they have available to pay for house moves is shrinking.
In addition, the full impact of government spending cutbacks will soon be felt. That will result in extra public sector job losses, which will mean fewer potential homebuyers.
And remember, those August loan approvals were arranged before the latest series of financial market panics. Credit was already tight, meaning the banks weren’t exactly keen on property lending. But over the last two months, bankers have got ever more jittery about lending money to each other, let alone to the British general public.
That could hit the UK property market in two ways, as I wrote last week. You can read the details here: How panic in Europe could hurt UK house prices. But to cut the story short, lending could dry up even more. And mortgage rates could start to rise faster than expected, which would further slow up demand for houses.
The insiders are bailing out of the property market
And here’s where we come to maybe the scariest bit of all. The property market’s insiders are selling out.
Growing numbers of estate agents are putting themselves up for sale, according to the boss of the stock market-listed agency Winkworth. This year the firm says it has had approaches from 35 agents who want to sell up. And it expects this trend to continue apace.
Now stock market investors pay attention when directors trade in their own companies’ shares. When there’s heavy selling by several top executives, it often warns of a looming downturn in a firm’s business prospects.
So when we see estate agents – the people on the inside track – trying to bail out in droves, the conclusion is clear. They wouldn’t be doing it if they were bullish – in fact, they’re freaking about the future for the housing market. And that has to be a very bad sign for UK property prices.
Sure, there are ‘hotspots’ such as central London, which so far seem to have escaped any real price damage. But even here, as my colleague Merryn Somerset Webb has frequently pointed out, the good times can’t go on forever.
So what’s next? Next month, we’ll be getting a panel of experts together for our annual property market Roundtable. Helped by the odd glass of wine, they’ll be talking long and hard into the night about where they reckon house prices are heading.
Category: Economics