Is the housing market at last on the up?
This week the Royal Institute of Chartered Surveyors (RICS) has predicted that the housing market will see a stronger end to the year due to the prospect of greater mortgage availability on the back of the Government's funding for lending scheme.
Very little information is provided to back up this prediction, and the RICS indicated that the housing market was flat during September, but the confidence among its members about the last quarter of the year is the highest it has been for more than two years. Let’s hope they are right!
The RICS goes on to say that problems still exist, and that unrealistic expectations on the part of the vendors seem to be stalling the transaction process. Whilst they believe that the Government’s funding for lending scheme is improving mortgage availability, they do point out that those at the very bottom of the property ladder are still struggling, and that interest from buyers in general has not seen any significant growth since the end of 2009.
They have identified a persistent theme, which is that sale transactions are going through where sellers are realistic in their price expectations. In other words, drop your price and you might just get a sale. This would correspond with the fact that housing prices in general are continuing to fall. It also fits in with a recent study by Rightmove, which found that 62% of buyers say they will not carry out a viewing on a property they consider to be over-priced, even if the property ticks all the boxes on their wish-list, and even though sellers often price with a view to negotiating downwards.
The Funding for Lending Scheme
The Bank of England and HM Treasury launched the Funding for Lending Scheme (FLS) on 13 July 2012. It was designed to boost lending to both households and businesses. It works by allowing banks and building societies to borrow from the Bank of England for up to 4 years. As security against that lending, banks will provide assets, such as business or mortgage loans, to the Bank of England. Banks will be able to borrow during the 18 months from 1 August 2012 until 31 January 2014.
In relation to property buyers, banks have been given strong incentives to boost lending, by lowering interest rates and increasing the availability of mortgages. The more that they lend, the more they can borrow from the Bank of England. Banks that are increasing their lending will pay the lowest fee on their borrowing while those that reduce their lending they will pay a higher fee.
To put it simply, banks borrow money from the Bank of England with attractive terms, in return for giving out more and cheaper mortgages to buyers, to encourage more spending, and thereby achieve economic growth.
Of the UK’s six biggest banks, all except HSBC, who say they do not need additional funding, have signed up for the scheme, so there is a feeling of confidence that mortgage availability is about to improve.
In summary, there are 11 weeks until Christmas so we'll soon know if the RICS's prediction is correct. Even if takes longer then they suggest, perhaps we are in for a positive start to 2013. I for one certainly hope so!
10th October 2012
Oliver Hudson Managing Director