UK Home Prices Slip As Banks Scale Back Lending

Source : The Business Times, June 23, 2009

The cost of renting property in the country is also falling, survey shows

(LONDON) UK home sellers lowered asking prices in June for the first time in five months as banks scaled back lending and required buyers to stump up bigger deposits, Rightmove plc said.

Mortgage cost: The mortgage lenders' body cut its forecast for home repossessions this year, saying record low interest rates are helping property owners pay their bills

The average cost of a home slipped 0.4 per cent to £226,436 (S$542,380) from May, when it rose by 2.4 per cent, the operator of the biggest UK residential property website said yesterday.

Separately, business service companies will lose more than 300,000 jobs within five years, the Centre for Economics and Business Research (CEBR) said in a report.

While the Bank of England says the housing market has shown signs of stabilising, governor Mervyn King cautioned last week that the squeeze on lending may slow the economy's recovery from the worst recession in a generation. Unemployment, which rose to the highest since 1996 in the quarter through April, may also hamper a rebound in home values.

'We're very much bumping along the bottom,' said Miles Shipside, commercial director at Rightmove, in an interview with Bloomberg Television. 'Sellers are having to reduce prices to where they're getting interest. With the pick-up in sales activity, there's a narrowing of the gap between asking prices and what's actually being achieved.'

House prices fell 5.5 per cent on the year, Rightmove said. Values dropped the most on the month in East Anglia, the North and the Southeast. Prices slipped 0.1 per cent in London. They rose in the East Midlands, Wales and the Northwest.

Mortgage lenders are raising the cost of fixed- rate loans and asking for bigger downpayments. Nationwide Building Society and Lloyds Banking Group plc this month both increased the cost of their fixed-rate home loans after a jump in UK swap rates, used by banks as a benchmark for mortgage costs.

The cost of renting property is also falling, the Royal Institution of Chartered Surveyors (RICS) said in a separate report yesterday. The percentage of agents reporting declining rents exceeded those reporting higher rents by 55 points, the most in the survey's 10-year history, RICS said.

The drop in housing prices follows reports last week showing retail sales unexpectedly fell and manufacturers' export orders declined to the lowest level in a decade. Mr King said that the economy's recovery will probably be 'protracted'.

Business services in Britain such as consulting, legal firms and accountants will lose 311,000 jobs between 2008 and 2013, the CEBR said yesterday. Output in the industry will drop 5 per cent this year, the report said.

Still, more than half of UK companies said the country has reached the bottom of the economic cycle and business confidence is at the highest since 2008, a survey by KPMG showed in a separate report yesterday. A majority still said they face higher financing costs and tighter borrowing.

The Council of Mortgage Lenders yesterday cut its forecast for UK home repossessions this year by 10,000 to 65,000, saying that record low interest rates are helping property owners pay their bills.

There are other signs of a pick-up. Inflation slowed less than economists forecast in May, while surveys of manufacturing and services industries improved. Both Halifax and Nationwide Building Society reported that home values jumped last month.

UK homebuyers are clinching smaller discounts on property prices as the housing market stabilises, the RICS said on June 15.

Rightmove said yesterday that asking prices are still 6 per cent higher than in January.

'We're through the worst, but it will take a long time to recover,' Mr Shipside said. -- Bloomberg