A bit of a shocker of a headline! House prices to stay flat for 10 years!
That was the headline I read for an article I received today based on discussions from the BSA conference.
I don’t know why I only received this today when the conference took place in April and I’m not sure how ‘on the pulse’ the delegates are at the ‘British Sociological Association’ when it comes to the wonderful world of finance and mortgage lending.
The article didn’t exactly say who had made this claim but it did reference a Mr Robert Parker, head of strategic advisory group at Credit Suisse (and he should know a thing or two).
Mr Parker is said to have commented that we, in the UK, are changing the way we look at property and returning to a frame of mind that regards houses as ‘homes’ as opposed to money making commodities.
Two competing opinions suggest that house prices will remain stagnant for a time due to 1/ Affordability and 2/ Availability of credit
John Cridland, director general of CBI is going with “Until wages catch up, the forecast of flat house prices is probably right” and Peter Griffiths, chief executive of Principality Building Society disagrees insisting that the bigger issue is the availability of credit.
I think the stigma of the crash is still making investors the word over a bit skittish when it comes to investing in property so they are not making the money available to the lenders.
Another reason they don’t want to invest is because they don’t see much in the way of short term ROI due to the lack of borrowing taking place.
People can’t buy houses because they don’t make enough money to save up the percentage deposit required. The average household does not have a great deal of spare cash so saving for a deposit is a mammoth task (or would that be ‘tusk’?)
Less people are in a position to borrow at the moment but if all of a sudden all the major lenders decided to offer 3%, 5 year fixed rate mortgages at 95% LTV something would surely happen.
So both Mr Cridland and Mr Griffiths have a point.
Lenders aren’t going to all of a sudden start offering such great deals because most of them are still trying to convince the market they are on top of their bad debt problems of the past. Not to mention the billions they’ve had to pay back in PPI claims.
Households aren’t about to start putting enough away to quickly come up with the deposit they need.
So is the projection of 5 – 10 years accurate for a flat housing market?
I’d go with closer to 5 but probably not as long as 10.
The economy needs to gain strength before salaries can increase so the country regains stability and creditworthiness. People will be able to save, banks will have more capital and will also be more stable which in turn will attract money for lending.
I could be wrong but it seems the banks are still very much at the heart of the problem but they are not alone. The Government may profess to be doing all it can but the ‘credit crunch’ (dust that off and use it again) left a massive hole which is taking a long time to fill.
I heard the books should balance by about 2015..?