House Prices Drop 5%

A new poll shows that UK housing prices will fall 5% this year and market analysts believe that it could get worse as a result of the soaring consumer inflation which limits the scope for interest rate cuts.nnThe poll conducted by Reuters show that the annual basis varied from a 10% fall to a 2.9% rise with a median forecast of a 5.0% drop in UK housing market.nnAccording to the poll of 30 analysts drawn from banks, investment firms and research institutes, nearly a third of the respondents predicted a 10% drop in the poll, which was taken May 8-14. The median compares with that of a 0.8% in a Reuters survey in March, highlighting the deteriorating outlook.nnOn Tuesday, a slip up by housing Minister Caroline Flint, raised the specter of a property crash in her briefing notes for the morning cabinet meeting at 10 Downing Street that was captured on camera and read by reporters.nnDuring the briefing, the Minister, described a fall of 5% to 10% in house prices as a best-case scenario, adding: “We can’t know how bad it will get.”nnThe disclosure undermines government attempts to maintain public confidence in the face of a slew of bad news on the housing market. nnThe housing market, a principle source of consumer wealth and which has tripled in value over the last decade, has been slowing rapidly in the face of a global credit crunch and despite cuts in official interest rates.nn"The fundamentals are so weak that it would require a prolonged period of base rate cuts to re-stoke house price inflation," said Andrew Goodwin at Experian.nnIn the Poll, analysts forecast even more gloom that monthly mortgage approvals will drop to 63,000 in six months, before recovering to 73,000 in 12 months. This compares with a record low level of 64,000 approvals in March and a 2007 average of around 104,000.nnHowever, it is not all doom and gloom in the property market. Last week a wooden beech hut in Suffolk was valued at up to 80,000 pounds while housebuilders have been taking advantage of falling land prices and snapping up plots that were previously too expensive.nnMarket analysts also say that approvals, loans agreed but not yet made, are a good early indicator of where house prices are heading.nnThe government has always maintained that the demand for housing was still strong and that the current predicament bears little resemblance to the last crash. However, on Tuesday, Home Builders Federation [HBF] called for drastic measures to avoid a housing collapse. They warned that “conditions are worse than at any time since 1989-92”.nnHBF also said they were concerned that jobs were already being slashed in the 300,000-strong house-building workforce with more sudden cuts were “only weeks away”. It demanded measures including a temporary abolition of stamp duty to help buyers.nnCouncil of Mortgage Lenders [CML] also said Tuesday that lending figures had collapsed to their lowest levels in 30 years because banks are no longer quick to offer mortgages on the same terms offered last year. nDespite a drop in base rates, many lenders are still tightening credit conditions for new borrowers. Millions of homeowners are set to be hit by higher mortgage rates when cheaper fixed-rate deals from two years ago expire this year.nnBritain's biggest mortgage lenders, HBOS and Alliance & Leicester are among banks asking for larger deposits and raising the criteria to obtain credit as they try to avoid risky lending. "Banks are likely to remain markedly more circumspect in their mortgage lending, as they should be," said Howard Archer at Global Insight.nnThe Bank of England cut interest rates by 25 basis points to 5.0% in April after making a similar cut in February. These followed a 25 point cut in December, the first reduction in two years.nnHowever, analysts are wavering on their calls for another cut in June as consumer price inflation has rocketed to 3.0%. UK rates have not fallen nearly as fast as in the U.S. where they have plummeted 325 basis points since September in an attempt to avoid a recession in the world's biggest economy.nnProperty Web site Rightmove said this week that over one million properties were currently for sale in the UK, 15% more than a year ago, but the average selling time had gone from 71 days to 85 days.n