March 6, 2008
Rating Agency Gives Little Hope as House Prices Continue to Drop
Standard & Poor’s, the worldwide financial rating agency, has warned mortgage borrowers for higher charges in 2008.
S&P’s report of 2007 Q4 figures, says: “Borrowers face an increase in mortgage payments principally from higher interest rates and lenders funding costs.
“These have been passed onto borrowers in the form of higher margins, recent product changes which limit their mortgage options, and tighter underwriting criteria by most lenders.”
“We expect this to manifest in increased delinquencies and repossessions in 2008.”
This comes as Nationwide revealed house prices fell by 0.5% in February, the fourth consecutive monthly decline in it’s monthly house price index.
According to the building society, the annual rate of house price inflation fell from 4.2% to 2.7%.
The S&P report is one of a long line of dire warnings from financial institutions concerning the mortgage market in 2008. The S&P report went on to say: “There is lower expected level of lending for 2008 and we have already seen the closure of some lenders in the UK towards the end of 2007 and a flurry of redundancies for many others.”
Andrew Sentence, a member of the Bank of England’s Monetary Policy Committee put his view more forcefully in a speech last week, by saying that: “an outright recession…is a remote risk for the UK economy”.
Fionnuala Earley, Nationwide's chief economist, says: “This is the fourth consecutive monthly fall in house prices and brings the annual rate of house price inflation to its lowest since November 2005.”
According to Nationwide, The average price of a typical property now stands at £179,358, an increase of £4,653, or £12.75 per day, over the last 12 months.
Earley adds: “Overall, it seems clear that we will not see recent rates of growth, in either the UK economy or housing market, repeated for some time.”
Simon Rubinsohn, the Royal Institute of Chartered Surveyors’ chief economist says: “The index compiled by the Nationwide has declined for four consecutive months and we expect this trend to persist for a while to come.
“Crucially with lenders scaling back loan to value ratios and generally favouring existing homeowners in terms of lending rates, first-time buyers are continuing to struggle to get a foothold in the property market. Without their renewed support, prices are likely to drift lower.”
This knock-on affect for first-timers was seen by Abbey this week; it revealed that at the start of 2008, 14% of non-homeowners were considering investing in their first property but now just a third of this group are planning to proceed with their purchase – 64% of first time buyers have put their property search on hold for now.
Nici Audhlam-Gardiner, director of mortgages at Abbey, says: “We know how difficult it is for first-time buyers to get on the property ladder, and this is exacerbated by current market uncertainty.
“As has always been the case, homebuyers should give serious thought to affordability when purchasing a home and not overstretch themselves.”
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