The housing contraction in England, not surprisingly, is following a similar trajectory to that in the US, and as here, tighter credit is the main culprit. However, since England’s overall consumer debt levels were even higher than those in the US, it’s an open question as to how deep the downside will be.
One factor that may cushion the fall is that London, always a favorite spot for foreign buyers, is a far greater proportion of the value of the UK market than Manhattan is of the US. But would expats venture much further than the preferred haunts, such as Mayfair, Belgravia, Chelsea, and Kensington?
U.K. house prices fell in May by the most in at least 17 years as the shortage of credit starved the property market of buyers, Nationwide Building Society said.
The price of an average home dropped 2.5 percent from April to 173,583 pounds ($344,000), Britain’s fourth-biggest mortgage lender said today in a statement. That’s the biggest drop since the index started in January 1991. From a year earlier, prices fell 4.4 percent.
Bank of England Governor Mervyn King predicted this month that property values are “likely to fall further” and said there is a risk that the U.K. economy may contract. Mortgage approvals fell in April by 39 percent from a year earlier, the British Bankers’ Association said this week.
“Tighter credit conditions in the market at present are making it more difficult for borrowers to obtain loans,” said Nationwide Chief Economist Fionnuala Earley in a statement. “More weak economic news added to the gathering momentum of negative sentiment about the housing market.”
Property values have now declined for seven months, the longest streak of drops since 1992…
U.K. banks increased the cost of home loans with a 5 percent down payment to the highest in more than eight years in April, failing to pass on the Bank of England’s three interest-rate cuts since December.
The BBC has an interesting page (here) with lots of data on UK average prices by region. I think even allowing for skew effects in the averages (assuming that’s what they really are, and not medians), it shows in short that UK house prices are basically insane country-wide.
While the FT’s version of the story points out that prices are still above 2005-2006 levels by a few percent, CPI and RPI are such that real prices are quite a bit more off-peak.