Blow for housing market as prices fall

House prices down in June, as mortgage costs rise
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The Independent Online

The price of a property put up for sale so far this month has been marginally lower than in May, figures released today will show, dealing a blow to property market professionals who believe the worst of the housing market downturn is now behind us.

A report from Rightmove, the online estate agency firm, will show that the average asking price of a property new to the market in June has been 0.4 per cent lower than in May. Miles Shipside, Rightmove's commercial director, warned that those who believed the property market was beginning to normalise were in for a shock, with the number of properties changing hands remaining at unusually low levels.

"It's a mistake to confuse the upturn in enquiries and sales with a return to a more normal market. While conditions are much improved on the darkest days of last year, we are now starting to see some big distortions and wild swings due to the combined effects of recession and restricted mortgage availability," Mr Shipside said.

"As the best deals on property and mortgages are only open to the equity-rich, the new stock that agents are looking to attract has to match what these purchasers want to buy and can afford. Perennially popular areas with good schooling are in, while flats in large blocks and terraces requiring major works are out, meaning new sellers are having to adjust prices accordingly."

Rightmove's figures confound reports such as the one issued last Friday by Taylor Wimpey, one of Britain's biggest housebuilders. It reported a sharp increase in forward sales, albeit from an unprecedented low base, and said it believed the housing market could move into a gradual recovery before the end of the year.

Rightmove's figures, however, suggest the market remains very patchy, with huge regional variations. In particular, the South of England has seen the number of sellers falling in recent months, while demand has remained relatively constant, suggesting there is greater scope for rises in house prices during the second half of the year.

By contrast, the decline in supply of property in the North of England has been much less marked, while demand has been similar to that seen in the South, which suggests there is less hope of price rises during the rest of 2009.

The patchy picture of the UK's housing market also reflects the continuing difficulty that would-be buyers are having with mortgage finance. The Bank of England's latest report on trends in lending, released last week, showed that the supply of mortgage credit does not appear to be expanding, despite political pressure on home loan providers to lend more. In particular, the number of loans available with higher loan-to-value property ratios – say 90 per cent – remains at an all-time low, which presents a particular problem for first time buyers.

There are also growing concerns that the cost of what mortgage finance there is available is now rising. While the Bank of England's base rate remains at an historic low of 0.5 per cent, the cost of fixed-rate deals, for which around two-thirds of borrowers are currently opting, has risen sharply over the past fortnight, in line with the increasing cost of borrowing on the wholesale money markets.

Mr Shipside added: "Interest rates for fixed-rate mortgages are now increasing, in line with money-market expectations of higher medium-term interest rates. Property deals appear within the grasp of cash-strapped first time buyers, but every rise in fixed rates frustratingly nudges them a bit further out of reach."

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