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UK housing market stays afloat, but don't expect miracles UK housing market stays afloat, but don't expect miracles
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All things considered, house prices proved remarkably resilient during 2012. The Nationwide building society has reported that prices fell by 1% during the year but given that the UK suffered its first double-dip recession since the 1970s, the fall could have been a lot bigger. All things considered, house prices proved remarkably resilient during 2012. The Nationwide building society has reported that prices fell by 1% during the year but given that the UK suffered its first double-dip recession since the 1970s, the fall could have been a lot bigger.
A number of factors explain why the cost of property stagnated. Rising employment, low mortgage rates and the leniency of lenders towards those in arrears meant there were few forced sellers. Supply of new homes has dried up, and was the main reason why the latest snapshot of the construction sector from CIPS/Markit was weak. A number of factors explain why the cost of property stagnated. Rising employment, low mortgage rates and the leniency of lenders towards those in arrears meant there were few forced sellers. Supply of new homes has dried up, and that was the main reason why the latest snapshot of the construction sector from CIPS/Markit was weak.
Moreover, the 1% drop reported by Nationwide masks big regional variations. An extra 47,000 property millionaires were created in Britain – most of them in London and the south east, where the economy was much more buoyant last year than in the regions north of a line drawn from the Severn Estuary to the Wash. Rents in and around London are high, which means demand for the limited pool of available property has remained robust. Moreover, the 1% drop reported by Nationwide masks big regional variations. An extra 47,000 property millionaires were created in Britain – most of them in London and the south-east, where the economy was much more buoyant last year than in the regions north of a line drawn from the Severn Estuary to the Wash. Rents in and around London are high, which means demand for the limited pool of available property has remained robust.
What then is the outlook for 2013? The Bank of England's credit conditions survey suggests that more money for home loans is becoming available and at more competitive rates. Threadneedle Street always said it would take time for the Funding for Lending Scheme, which offers lenders access to cheaper borrowing provided they pass the benefits on to their customers, to work after its introduction in August 2012 and so it has proved. What is the outlook for 2013? The Bank of England's credit conditions survey suggests that more money for home loans is becoming available and at more competitive rates. Threadneedle Street always said it would take time for the Funding for Lending scheme, which offers lenders access to cheaper borrowing provided they pass the benefits on to their customers, to work after its introduction in August 2012, and so it has proved.
The availability of finance has been an important factor explaining the frozen state of the residential property market for the past two years so it should be easier in 2013 for borrowers to get a mortgage. The availability of finance has been an important factor in explaining the frozen state of the residential property market for the past two years, so it should be easier in 2013 for borrowers to get a mortgage. But perhaps not that much easier, at least not yet. Lending criteria for first-time buyers remain a lot tougher than they were in the boom years before the crash, requiring those potential buyers without financial support from their parents to save hefty amounts for deposits.
But perhaps not that much easier, at least not yet. Lending criteria for first-time buyers remain a lot tougher than they were in the boom years before the crash, requiring those potential buyers without financial support from their parents to save hefty amounts for deposits. An increase in the supply of mortgage credit is a necessary but not sufficient condition for a rise in property transactions. The willingness of consumers to take on more debt, the state of their finances, and the level of confidence about the future also matter. Here, there are reasons to be cautious.
An increase in the supply of mortgage credit is a necessary but not sufficient condition for a rise in property transactions. The willingness of consumers to take on more debt, the state of their finances, and the level of confidence about the future also matter. Here, there are reasons to be cautious. Real incomes remain under pressure and households are still working off the debts built up in the previous economic cycle. Public spending cuts will hurt the northern regions more than those in the south. Real incomes remain under pressure and households are still working off the debts built up in the previous economic cycle. Public spending cuts will hurt the northern regions more than those in the south.
The first month of the New Year will be dominated by speculation about whether the economy is on course for an unprecedented triple-dip recession, which will ensure that 2013 gets off to a slow start. The lack of housing supply and Funding for Lending will underpin the property market over the next 12 months, but any pick-up in transactions and prices will be modest and gradual. The first month of the new year will be dominated by speculation about whether the economy is on course for an unprecedented triple-dip recession, which will ensure that 2013 gets off to a slow start. The lack of housing supply and Funding for Lending will underpin the property market over the next 12 months, but any pick-up in transactions and prices will be modest and gradual.