Will the sun shine on home sales this Easter?

This bank holiday may just kick-start the market for properties old and new.
Click to follow
The Independent Online

Easter is long-established as the start of the home-buying season. Even dull properties look inviting when the sun shines on them. Muddy patches turn into colourful flower beds. People emerge from winter with plans to start afresh in new houses. And they use the long, light evenings to search for their dream homes.

Yet Easter approaches this year with the housing market moving from bad to worse. Figures last week from Nationwide showed the tiniest rise in house prices in March but most forecasters regarded this as a blip rather than the start of a recovery. So what everyone wants to know is whether the long bank holiday will perform its customary role in kick-starting the market, or will the prospect of further price falls force purchasers to postpone their moves even longer?

"It's a challenging time for the house-builders," admits Steve Turner, a spokesman for the Home Builders Federation (HBF). "Easter is a traditional time for buying and all the builders will be upping the marketing campaigns."

This time last year, builders of new homes were still raising their prices even though the second-hand market was clearly in decline. New-home prices were still more than 4 per cent higher last June than when the resale property bubble began to burst, a year earlier; by September, new properties were 1.6 per cent down on the year and by Christmas the annual fall was 13.9 per cent. The latest quarter ends this week and the decline is expected to match the 18 per cent collapse in the rest of the market. Developers have seen sales plummet despite incentives such as paying buyers' legal and mortgage fees. But many builders are concentrating on price cuts rather than gimmicks.

And there are signs that deep price cuts are reviving buyers' interest. Neil Fitzsimmons, the chief executive of the housebuilder Redrow until last week, says he is optimistic that Easter will mark the start of an upturn. "The buying season only begins to pick up at the end of January and builds up to Easter, then tails off," he says. And, looking at the figures so far for this year, he added: "I'm mildly encouraged – though I need to put that in context."

The context is that his sales in the second half of 2008 were half the previous year's. "But if you look at the newsflow on unemployment, Woolworths and the car industry, we were fearful we might not see a normal seasonal pick-up in the market," he says.

Builders are reporting more visits to sites, even if reservations remain low. It is a picture seen by sellers of older homes too. Estate agent Jeremy Leaf says: "Across the country, the number of inquiries has rebounded threefold since November."

Leaf is a spokesman for the Royal Institution of Chartered Surveyors whose statistics track that measure of potential sales. "Historically, higher inquiries have always resulted in higher mortgage applications," he says.

The housing data has to be studied hard to find signs of green shoots, however. The annual fall in prices nationally – at 18 per cent – is more than the total decline over the four years of the 1990s crash – taking the average price below £150,000 for the first time since 2004. Repossessions are rising and mortgage lending in February was the lowest since 2001. Yet the monthly price falls seem to be getting smaller and homes are more affordable relative to earnings than at any time since early 2003. The annual price decline is expected to peak at about 20 per cent in the next couple of months then fall, providing an apparent sign of improvement that could encourage buyers.

Estate agents, housebuilders, mortgage lenders – and in particular owners – hope the interest from potential purchasers will lead to increased sales and stable prices. Even buyers want to see that: they do not relish purchasing cheaply then seeing their equity eroded as prices fall further. Leaf, who sells homes in north London, says: "We're seeing more instructions and one of the problems has been lack of instructions, even if the shortage has been underpinning the market."

However, mortgage finance remains the main barrier to a market recovery, he says. "Our biggest issue is access to finance. Not just availability, but accessibility. Even those with substantial deposits of 30 or 40 per cent are finding it hard to get through the credit committees. They're not turned down. It's just taking an inordinate amount of time."

He blames changes in the banks' lending policies as regulators get tough, but he suggests that once this blockage is cleared there will be a surge in deals. "A bubble is building up." He also blames his own profession, saying surveyors are giving low valuations to cover themselves against further falls. "That's self-fulfilling," he complains.

Government-owned banks such as Lloyds and Northern Rock have been told by ministers to increase lending. But, they need to raise lending levels simply to fill the gap left by foreign banks that have quit the UK mortgage market.

Turner reports housebuilders' sales suffering from the shortage of home loans too. "The main constraint is that people cannot get mortgages at a rate that is affordable," he says.

However, the housebuilders have banking problems of their own. They entered the slump with high gearing made worse by writedowns on landbanks, pushing them close to gearing limits. Taylor Wimpey has been in talks with its bankers for almost a year. The date for testing its covenants was extended from December until last week but has now been pushed towards summer. The builder started the year with £1.55bn of debt but asset sales to reduce that have been offset by sterling's weakness, increasing the value of its overseas borrowings. It hopes to announce an agreement with its banks when it releases its trading results in April.

Rival Barratt, which lost £592m last year and has debts of £1.1bn, has managed to repay ahead of schedule a £200m loan due next month.

Fitzsimmons admitted that when he met Redrow investors and City analysts, "there was little discussion of profits and more about debt reduction and volume of business".

Builders have been helped by stock being bought for social housing, especially flats aimed at the buy-to-let market. "The Government has put aside a lot of money to buy homes for housing associations," confirms Turner at the HBF. That means the overhang of new units that has depressed the market is disappearing quickly. Taylor Wimpey had more than 2,000 unsold completed properties last June but has fewer than 1,000 now, having put the brakes on new construction.

Another piece of government aid could boost the market this summer – the stamp-duty holiday for properties below £175,000, due to end in September. Saving the 1 per cent tax has provided little incentive so far, but estate agents think that if prices are stabilising there could be a rush to agree deals.

Builders also believe that the steep cut in mortgage rates should stimulate the market. And that the current low level of property sales means a large number of people who have postponed moving are waiting to purchase.

Paul Gratton, chairman of XBond, a company that guarantees deposits for buyers from all the big builders, says: "There is definitely evidence of pent-up demand. There's one million transactions that have not happened. One-third of that turning into purchases would mean a significant increase in volume. The pent-up demand is there but it's a confidence thing."

Leaf believes the increase in people visiting estate agencies is a sign that would-be buyers can wait no longer. Easter could again be the signal for people to search the market for a new home for the summer. He says: "The number of new applicants shows there is genuine demand from people wanting to get on with the rest of their lives."