UK housing sales plunge to record low

UK housing sales plunge to record low

Fewer homes will change hands in Britain this year than ever before, as borrowers struggle to find an affordable mortgage and confidence plunges, analysts predict.

As shell-shocked banks cut back on lending, in a process Bank of England governor Mervyn King described last week as 'the great unwinding', the supply of mortgages is likely to continue to be tight, keeping potential buyers out of the housing market, and putting relentless downward pressure on prices.

Consultancy Capital Economics, which is forecasting a 35 per cent decline in house prices by the end of 2010, says the mortgage drought will mean that just 750,000 transactions are completed in 2008 - down almost 40 per cent on last year, and the weakest figure on record.

'I think it's very striking that the number of new mortgage approvals is already below the recession levels of the early Nineties,' said Capital property economist Ed Stansfield.

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With inflation well above the government's 2 per cent target, there is little hope of an early cut in interest rates to ease the pain for borrowers, and City investors believe rates could even rise by the end of the year.

Stansfield points out that past housing slowdowns have lasted up to five years from peak to trough, and he expects prices to decline by 15 per cent this year; by up to 12 per cent in 2009, and by yet another 10 per cent in 2010 - one of the most pessimistic City forecasts.

Many businesses that rely on the flow of housing sales, from builders to surveyors, estate agents to DIY retailers, are already struggling to survive. There is the added pressure of new entrants such as Asda which has launched a 'no frills' property website homesinstore.com. The service, in partnership with local agents, has been extended to Kent and Essex, following a trial in the north east, with a view to a nationwide roll-out. Asda says it could save vendors thousands of pounds as they will pay 1 per cent commission, compared to an average of 2 per cent.

Miles Shipside, commercial director of property website Rightmove, said many estate agencies have already cut costs as the slowdown bites. 'A lot of them have shed staff and cut back on investment, and some have mothballed branches. They're very adept at cutting back on variable costs.'

The Bank of England will give its assessment of the problems in the mortgage markets when it publishes its quarterly Credit Conditions Survey next week.

Michael Saunders, chief UK economist at Citigroup, said the report is 'likely to show a further marked tightening in lending standards'. He calculates that there are 78 per cent fewer mortgage products available than at the pre-credit crunch peak last summer.

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