UK home market struggles to sustain recovery

Lobby group says transactions will remain low unless lending picks up

The UK housing market will struggle to sustain a recovery unless lending picks up, the head of Britain’s main homebuilding lobby group said.

‘It’s potentially quite fragile,’ Stewart Baseley, chairman of the Home Builders Federation, said in an interview in London on Tuesday. ‘Without mortgage finance, the housing market will continue to be at very low levels of transactions. It’s difficult to describe that as recovery.’

House prices have fallen 13 per cent from their peak two years ago and may drop as much as 30 per cent, Fitch Ratings said in a report last week. Banks are granting about half as many loans every month than at the end of 2007. Lenders remain constrained by a lack of capital and are looking to reduce leverage, Bank of England deputy governor Charles Bean said on Tuesday.

‘We’ve all been surprised by the resilience of prices this year, certainly compared with what we were perhaps expecting at the turn of the year,’ said Mr Basely, whose group represents 80 per cent of the UK homebuilding market. ‘There are more buyers and quite a few are simply not able to make the grade because they don’t have the deposit.’

The lack of affordable mortgages indicates ‘a period of stagnant growth at best, or at worst a double-dip contraction,’ Fitch analysts including Julian Crush said in the report. The credit outlook for the country’s homebuilders remains negative, the agency said.

For now, house prices are climbing. The number of surveyors and estate agents reporting an increase exceeded those reporting declines by 22 percentage points last month, compared with 10 per cent in August, the Royal Institution of Chartered Surveyors said on Tuesday. Halifax, a division of Lloyds Banking Group plc, said last Tuesday that prices rose 1.6 per cent last month.

Homebuilder Bellway plc said on Tuesday that the number of buyers reserving properties has risen by more than half from a year earlier, adding to signs that the market is strengthening after the worst slump in 25 years.

Prime Minister Gordon Brown’s government has bolstered homebuilders by suspending some taxes on property sales and creating a £300 million (S$667.3 million) programme to lend down payments to predominantly first-time buyers.

The construction industry would benefit from an extension of such policies, Mr Baseley said.

Barratt Developments plc, Persimmon plc, Miller Group Ltd and Redrow plc are offering a combined 7,000 homes through the government’s lending programme that is due to finish at the end of March.

Mr Baseley said that he would also like to see future governments focus more on homebuilding. The UK has had four housing ministers in the last two years and another may take office if the Conservatives win an election due by the middle of 2010. Mr Brown’s Labour Party has trailed the opposition for two years in opinion polls.

Source: Business Times, 15 Oct 2009