House Prices Up For First Time Since 2007
Hopes that the worst of the recession might be over were bolstered yesterday as house prices rose for the first time in 17 months and banks indicated that the credit crunch may be easing.
Property values rose by 0.9 per cent in March, bringing the value of the average house to £150,946, figures from the Nationwide Building Society showed.
The increase reversed the unrelenting monthly declines that have wiped more than £38,000 off the value of a typical home since the market peaked in October 2007. The annual pace of falls in house prices also slowed to 15.7 per cent, from 17.6 per cent in February.
The positive figures, which came days after the Bank of England reported a near 20 per cent rise in mortgage approvals in February, have raised hopes that the crash in property prices may be nearing an end.
A survey from the Bank of England showed that banks and building societies expected to lend more to homebuyers and businesses over the next three months.
RBS and Lloyds TSB, both controlled by the Government, have pledged to lend £25 billion and £14 billion respectively this year.
The benefits from extra funding could be undermined, though, by a further tightening of lending criteria. Several banks expected to make their lending terms more stringent, rather than less, in the next three months, the Bank of England survey showed.
At present, homebuyers with a deposit of less than 40 per cent are excluded from the most competitive deals, while those with a deposit of 10 per cent or less, which includes many first-time buyers, must pay mortgage rates of 6 per cent or more.
HSBC, one of Britain’s biggest lenders, said that it would ease its lending criteria slightly from Monday, when borrowers with a 25 per cent deposit will be able to apply for its tracker deal at 2.95 per cent. Only those with a 40 per cent deposit are currently eligible. Its most competitive deals are still out of reach for those with a deposit of less than 25 per cent.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said that such criteria will act as an “impediment for many potential homebuyers who want to take their first step on the property ladder”.
He said: “While the market may now be out of intensive care it remains some way off a return to normality.”
Vicky Redwood, UK economist at Capital Economics, said: “Getting banks lending and firms and households borrowing again is likely to be a very gradual process. And in the meantime, we expect both further falls in house prices and a continued contraction in the overall economy.”
Fionnuala Earley, chief economist at Nationwide, further dampened expectations of a return to steady growth. She said: “While the rise in house prices is welcome, it is too soon to see this as evidence that the trough of the market has been reached.”
The pace of house-price falls in Northern Ireland, where values have fallen farthest, eased slightly in the first three months of the year, with prices falling by 4.1 per cent between January and March, compared with an 8 per cent drop in the final three months of last year.
Homeowners in Wales saw the biggest drop in house prices, with values dropping by 8.3 per cent between January and March. Prices held up best in the South West of England, falling by just 2.9 per cent. House prices in London fell by 5.3 per cent between January and March, while homeowners in the South East saw the value of their homes drop by 4.5 per cent, Nationwide said.
Businesses have also struggled as banks refuse to extend their credit lines. Business groups have said that this has contributed to the collapse daily of 85 small businesses.
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