Gloom deepens on house prices

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The Independent Online


More gloom was poured onto the housing market yesterday as Halifax Building Society disclosed that prices fell further last month and new home starts dropped to low levels not seen since the depth of the recession.

The stagnant market has prompted Abbey National to try and kickstart demand by reintroducing 100 per cent mortgages. It is the first from a high street lender since they were abandoned in 1989 after being blamed for encouraging homeowners to take on more debt than they could service.

Abbey's latest move is seen as a new strategy to gain a greater share of an already highly competitive mortgage market.

The Halifax index of house prices fell 0.2 per cent last month to a level 1.5 per cent lower than a year earlier. The underlying trend in prices is flat, and the society said its earlier forecast of a 2-3 per cent increase this year is starting to look optimistic. On Monday Nationwide Building Society reported a 0.4 per cent rise in house prices in March, leaving them the same as a year earlier.

Abbey's offer of 100 per cent mortgages to homeowners who could not otherwise afford to move is being seen as a significant new shift in the fierce mortgage price war as lenders struggle in the face of the moribund housing market.

Falling house prices have left many households unable to afford a deposit on another home because they have little or no equity left. Abbey National hopes 100 per cent mortgages will stimulate more activity.

Last year its scheme for its existing borrowers with negative equity led to 1,000 moves. The new scheme is open to borrowers with other lenders but will not extend to first-time buyers.

The Abbey initiative comes in a week of renewed efforts from the big lenders which saw Midland Bank launch a series of deep-discounted variable- rate mortgages. "We shall be watching the Abbey move with extreme interest,'' one building society said. "It's a bold move. ''

Halifax Building Society, Britain's biggest, said it offered 100 per cent mortgages to existing customers but has no immediate plans to include new ones. "We want customers with a good track record who will stay with us, not perpetual remortgagers,'' a spokesman said.

The fact that the housing market is at best flat is the cause of intense competition between mortgage lenders. John Wriglesworth, head of strategy at Bradford & Bingley building society, said: ``Societies are almost giving away mortgages to get new business.''

Separate figures on housing starts in February showed that they had continued to fall towards the low levels experienced at the depths of the recession. The Department of the Environment estimated that there were 14,800 dwellings started, down from 16,600 the same month a year earlier.

Starts in the latest three months were 3.6 per cent lower than in the same period a year earlier. A sharp fall in building by housing associations more than offset a modest increase in private housebuilding starts.

Observers are almost universally gloomy about the market's prospects. Roger Humber, director of the House Builders Federation, said: ``New homes are doing a bit better than the housing market overall, but we are not seeing the recovery we had hoped for.'' Mr Wriglesworth said: ``The housing market is not going to recover until the next millenium.''

Building societies are bitter about the cuts in Mortgage Interest Relief At Source that take effect this week and restrictions on income support for mortgage payments from October, and are lobbying the Government for a rethink.