Britain will not follow America into a housing crash, the Chancellor of the Exchequer, Alistair Darling, predicted yesterday. Speaking to an audience in Washington before the G7 meeting, Mr Darling said that while the world was facing "the biggest economic shock since the Great Depression", the fundamentals of the British economy were "sound".
There "were key differences between the UK and United States housing markets which mean that the UK housing market is unlikely to experience problems in the way that the property market in the US has been affected", he said.
However, the Chancellor's comments coincided with a stark warning from mortgage providers that the net new lending in the UK could halve this year unless banks can be persuaded to start lending to each other again.
Mr Darling told his listeners that the falls in US house prices were being driven by a very large overhang of unsold houses. "In the UK, by contrast, housing supply has not kept pace with demand," he said. The "inventory" of properties on the market for an extraordinarily long time has been a feature of the US market, which has also seen drops in value of 10 per cent on the year in some states such as Florida.
However, the latest figures from the property website Rightmove suggest that the number of unsold properties in Britain was at its highest level for spring since it started to monitor this trend in 2002. Inventories are running about 20 per cent higher than the same time last year – a further confirmation, along with the Halifax reporting a 2.5 per cent decline in prices last month alone, of a rapidly cooling market.
Mr Darling explained to his American audience that "while the UK also has a sub-prime mortgage sector, it is much smaller than that in the US". In the past, the Council of Mortgage Lenders (CML) put the share of "sub-prime" mortgages in Britain at about 6 per cent of the market, against about 15 per cent in the US, although there was no generally recognised definition of what precisely a "sub-prime" borrower is.
Thirdly, the Chancellor added, "regulation around mortgage lending is stricter in the UK than it is in the US", although the British market has seen a breathtaking liberalisation over the past two or three decades. Mr Darling said: "We will consider options for improving the mortgage-backed securities market aimed at broadening the investor base and improving the robustness of the market."
A review under the chairmanship of the former HBOS chief executive Sir James Crosby has been given the task of coming up with ideas to help restart the market for these securities, the collapse of which is one of the main factors behind the credit crunch. Such ideas as "kite marking" them to help mortgage-backed securities become more marketable has been suggested, which would help the banks raise funding and end the "mortgage famine" now afflicting the property market.
Steven Crawshaw, the chairman of the CML, warned yesterday that this famine could see net new mortgage lending halve in the UK. Speaking as three-month Libor, the key interbank lending rate, rose to 5.927 per cent, Mr Crawshaw said banks were not lending to each other because they were worried about running out of funding, not because of lack of trust. He called on the Bank of England to extend the term of its loans to lenders beyond three months to as long as two years to help instil confidence.Reuse content