A funding squeeze is widening this regional gap, according to the latest Quarterly Economic Bulletin from the Association of Mortgage Intermediaries.
Gross lending is set to match 2010 levels, with lending of £130 to £135 billion likely in 2012. House prices continue to fall, down 2.6% on the year, 0.3% in the three months up to August.
‘Our report shows that at a national level house prices have fallen by 2.6% compared with last year. However, a closer look also shows that the gap between regional house prices is expanding. Clearly, evaluating house prices on a national basis is less and less useful in building a true picture of the market,’ said Robert Sinclair, director of the AMI.
‘Overall levels of transactions are down and without sufficient mortgage funding there will be no way for transactions to grow substantially. Cash buyers will have an impact, but there is a limit to the effect they can have on transaction volumes. More funding will be required before there is a return to previous transactions levels,’ he explained.
‘Re-mortgage volumes have increased compared to last year, this has been fuelled by an increased take up of fixed rate products compared to 2010. Although interest rate rises appear to be off the agenda for the moment, more consumers are looking to secure attractive low fixed rate product in light of economic uncertainty,’ he added.
The report points out that house prices are volatile at present as different indices showing prices up one minute and down the next although all the main indices show prices slightly down year on year.
Asking prices are particularly unreliable as sellers struggle to set a price and volumes are low, making it harder to get a good idea of what to ask.
But it says that there is some evidence that first time buyers are more optimistic. However, there are a lot of prospective home movers who are unable to move owing to insufficient or negative equity. Insufficient equity blocks the market because tighter lending criteria mean many borrowers end up without the borrowing capacity to get a mortgage.
Someone who bought on an 85% LTV in 2007 would now have only around 5% equity, nothing like enough to remortgage or move up the housing ladder. The average purchase LTV in 2007, for example, was 80% so many borrowers from that year will be in this position. Anyone on an interest only mortgage would be more exposed still.
On top of that the costs of moving home are prohibitive, it says. Stamp duty and all the various legal and removal costs mount up very quickly when equity is already tight. Tinkering with the stamp duty holidays could help a lot, perhaps extending it beyond just first time buyers, the report adds.
