(London) THERE are some encouraging signs coming from the feeble British housing market, where prices are down on average 15 per cent from their 2007 peak. In July, residential property prices rose for a third consecutive month after mortgage approvals hit their highest level in 14 months in June. New buyer inquiries also rose - many of them wealthy non-Britons looking to snap up bargains.
In a further indication of an incipient recovery, foreign lenders like the Bank of China have also started to expand their mortgage offerings in Britain, while local banks are limiting their lending to repair their balance sheets, either voluntarily or under government pressure.
'It's a great time to lend if you can and they've clearly got money to lend,' said Mark Harris, a mortgage broker at Savills, a real estate company based in London.
House prices were still 6.2 per cent lower in July than a year ago, but that is less than the 9.3 per cent year-over-year decline a month earlier, according to a survey by the Nationwide Building Society, a bank. Prices have risen 1.3 per cent since the beginning of the year, the survey found.
Analysts said it was too early to predict a housing recovery in Britain, especially because unemployment was not expected to peak until the end of this year. But the recent housing data suggests that prices could at least be stabilising, and some economists see it as a sign that the market has reached a bottom.
'There is now a reasonable chance that prices could end the year slightly higher,' Martin Gahbauer, chief economist for Nationwide, said. 'Only a few months ago, such an outcome would have appeared unthinkable.'
The increase in housing prices, helped by purchases in prime areas of London like Chelsea and Knightsbridge, is mainly a result of a shortage of properties. Liam Bailey, head of residential research in London at Knight Frank, said the number of properties for sale fell by half during the last 12 months because homeowners were waiting for a recovery.
Some real estate agents also saw more interest from non-British buyers seeking an attractive investment. They were lured by a combination of lower prices, a beneficial exchange rate and low interest rates.
A similar situation in the early 1990s started a slow housing market recovery in Britain that stretched over several years. Peter Spencer, author of the Item Club forecast on the British economy, said the housing market played a larger role in the country's economic ups and downs than in most other parts of Europe or even in the US.
'A relatively high proportion of people in Britain own houses, and unlike Americans, we mainly have variable rate mortgages, which means that income flows vary and there's a more direct link to consumption levels,' he said.
While the latest numbers were 'quite encouraging', Mr Spencer cautioned: 'The question is how sustainable they are if they're mainly based on cash buyers, some of them from overseas.'
Andrew Weir, central London area director for Foxtons, a large real estate agency, estimated that about 65 per cent of his current customers were not British. He said he was being contacted more often by wealthy Italians, Greeks and Spaniards. 'They mainly buy for investment reasons,' he said.
A small number of overseas banks are also looking for opportunities. 'Given that our mortgage products and criteria are very competitive in the market now, it is a good opportunity for us to grow our loan book,' said Lan Xiong, a spokeswoman for the Bank of China.
The bank catered exclusively to the Chinese community in Britain but now plans to broaden its customer base by offering mortgage rates that undercut British competitors. Bank Leumi of Israel and Handelsbanken of Sweden also offer mortgages below the rates of some British banks, focusing on wealthier clients. All the loans are in offered in pounds.
But for the average person, especially first-time buyers, getting a mortgage remains a major obstacle. Most banks ask for a 25 per cent deposit, a hefty sum, considering that the average house price in Britain is £158,871, or about S$383,524, and the average annual salary is £31,300.
The hope is that once the top mortgage market becomes crowded, some banks will start to take on more risk and lower the required deposit, said Mr Harris, the broker at Savills. -- NYT
Source: Business Times, 8 Aug 2009