Assetsure News 18th August 2008

Housing Crisis Continues…

The recent research by Savills has shown that the land prices of inner-city Brownfield sites have fallen by 20% during the last six months. With most house builders struggling to recoup profits from long-term investments, due to falling house prices, this is particularly bad news. It is probable that more house builders will issue profit warnings as a result of bad investments due to negative equity in land. The larger house builders such as Wimpey and Barratt are already in debt due to the severe market conditions of the property market. Their average share price has fallen over 80% since June last year.

House builders are in the process of lobbying the government in order to provide financial schemes for first-time buyers, struggling to get onto the property ladder. Currently first-time buyers has dropped to record levels due to fears about her falling house prices. The Chancellor has already hinted that there may be some kind of stamp duty relief for certain low income groups and first-time buyers. The new homes marketing board has also been lobbying the government to introduce a new deposit savings scheme tax break to help first-time buyers afford the cost of deposits.

Ironically, as the number of new build blocks of flats and new landlords evaporates, the scarcity of land for rental property, continues to cause rental prices to increase. Although landlords have seen the value of their investments fall, they can take some comfort in evidence that suggests that the average rental value is rising. First-time buyers are increasing demand for scare property by choosing to rent and wait until market conditions improve. Letting agent research has revealed that students are paying approximately 30% more than five years ago due to the rising costs of the credit crunch.

The impact of the credit crunch is also changing the structure of mortgage market. Traditionally, the UK mortgage market has been a diverse and highly competitive one. Building societies and specialist intermediaries had a strong market presence. Now though the big high street banks have started to increase their market share. Lloyds TSB, Barclays, Royal Bank of Scotland and at the will take market share from Northern Rock who are actively encouraging existing mortgage borrowers to go elsewhere in which to repay it's colossal debt back to the taxpayer. The overall size of the mortgage market is shrinking as the number of new approvals plummets. High-street banks appear to be positioning themselves to target applicants with the really good credit ratings and the highest level of deposit. As major banks have better access to money markets than the secondary mortgage market, they are in a prime position to exploit the credit crunch for the long-term and become the dominant force in mortgage lending in the medium term.

Meanwhile, the number of repossessions is reached a 15 year high. During the three months to June there were almost 20 9000 mortgage repossession orders in England and Wales alone, representing an incredible 25% jump in the same period compared to a year ago. An increasing number of indebted homeowners are facing rising household fuel and food bills alongside rising fixed rate mortgage costs which are considerably more expensive than the discounted deals, obtainable two to three years ago.