3 Reasons The Uk Housing Market Remains In The Doldrums
New figures from the Bank of England show that the number of regular and large mortgages approved in June 2012 was the lowest for 18 months
. Despite Government initiatives and a mini mortgage price war between lenders, fewer people are applying for new home loans than in any time since 2010. Indeed, there has been a 10 per cent drop in the number of mortgage approvals for home purchases in the last year.
So, why is the UKs housing market so depressed? Why are the numbers of high net worth mortgage approvals falling? And why arent things improving? We outline three reasons why the countrys housing market remains subdued.
Limited access to mortgages reducing numbers of new buyers
One of the main reasons that the UKs housing market remains sluggish is that there is a lack of new buyers coming to the market. Without new entrants, existing homeowners cant move up the housing ladder, and so the demand for new homes falls. Even if you are a high net worth client, you probably still need someone to buy your home in order to move, and to do so they will need someone to buy their home and so on.
The Guardian reports that the end of 100 per cent mortgages, the need to put down a chunky deposit and the high level of unemployment among young people have all ensured that the flow of new buyers has been limited.
The Government has launched its funding for lending initiative in an attempt to get banks and building societies to lend to first time buyers at competitive rates. Until this happens, however, the demand from buyers is expected to remain low.
Lack of supply
If demand is low, economic theory would suggest that there should be a fall in prices of property so that unsold homes can be shifted. However, this is not happening in the UK because the weakness of demand is being matched by weakness in the supply of homes for sale.
The Guardian adds that private sector house building is low, and unlike the recession of the early 1990s there is not a massive flow of forced sales caused by rapidly rising unemployment and repossessions.
Islay Robinson, director of London mortgage broker Enness Private Clients, said: Without a decent supply of homes, the UK market wont recover. Thats why the Association of Mortgage Intermediaries has this week called on the Government to provide more incentives for new homes.
Low confidence
One of the fundamental problems facing the UK property market is simply that confidence is low. With Britain in a double-dip recession and many people aware of the continuing problems in the Eurozone, confidence among potential buyers is low and likely to remain so.
Mr Robinson of Enness Private Clients adds: Buyers are likely to insist on paying lower prices for homes while sellers are happy to sit tight and wait for their asking price. As a result, sale transactions and mortgage approvals, including large mortgages, remain low.
As The Guardian concludes, the property market big enough to have a marked impact on the economy's overall growth rate is going nowhere fast.
by: Michelle Symonds
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