While prices in the residential sector have fallen by an average of 15% since the peak of the fall of 2007, the time has come for stabilization. They even rose in July for the third consecutive month.
The number of approved mortgages is also up in June, for the fifth month in a row. And according to the Bank of England, potential buyers have returned to the real estate agencies.
Cash purchases by foreigners – rich in dollars and euros following the decline of the pound sterling – of high-end homes and apartments in central London are behind this consolidation.
If the drastic fall in interest rates favors all market segments, the recovery concerns, in particular, the properties of more than 10 million pounds (11.7 million euros), which are once again popular. And foreign banks, like the Bank of China, are now competing with UK institutions for mortgages.
“The real estate market seems to have bottomed out, and the year may end with prices rising slightly, which seemed impossible only a few months ago,” says Martin Gahbauer, the economist at Nationwide Mortgage Fund.
To listen to Simon Robinson, specialist of the Royal Institution of Chartered Surveyors – the association of the approved experts -, it is the weakness of the supply rather than the return of the demand which explains this improvement.
Many potential homeowners are waiting for better days to put their properties on sale. By facilitating the repayment of mortgages, the historically low level of the cost of money – in a country still adept at a variable rate loans – also fuels this wait-and-see attitude. In addition, the reluctance of credit institutions to seize the property of bad payers limits the number of properties available.
Still, despite these positive points, the experts are still cautious about the long-term evolution. According to the National Housing Federation, prices are expected to decrease by 12.2% in 2009, by 4.6% in 2010, and then to recover from 2011. However, the peak of 2007 will not be exceeded before 2014. Indeed, the first-time buyers, one of the main barometers of the state of the sector, are still experiencing the worst difficulties to engage in the Sacro-saint housing ladder, despite the large rebates obtained from the sellers.
No more crazy years of no-deposit loans of 125%! Scalded by the losses suffered in subprime mortgages, the lenders now require bids up to 30% of the purchase price, and the loan must not exceed 2 to 2.5 times the gross annual salary. Now, when the average price of a good is 158,871 pounds, the average annual salary is 31,300 pounds.
“The market is going to have its ups and downs in the coming months, and a sustained recovery is not on the horizon,” said economist Howard Archer of IHS Global Insight. In addition to the tight credit conditions, uncertain macroeconomic indicators also threaten this rush. The continued rise in unemployment, wage deflation and the persistence of high household debt will continue to weigh on the real estate market.