Who blinks first? Builders, buyers or building societies

It has to be said. There are a lot of mixed messages coming out of the housing market. While the number of mortgage applications appears to be on the increase, the number of new housing starts is lower than they have been for many years, and the prospects of a pick- up looks to be remote. It could well be that the public who are buying properties are scouring the second hand market for bargains, and justifiably so. However that is a situation that cannot continue indefinitely, and new house sales must surely begin to increase.

What appear to be happening at the moment is house builders and mortgage banks appear to be at loggerheads. The main bones of contention between them are that undue prudence in the mortgage market was preventing a recovery in the house building sector. The mortgage bank’s lack of enthousiam to grant mortgages on new and full price properties is reported to have cost the residential building industry around £3 billion in losses within the last year.

Barratt Development, one of the UKs largest builders have announced that they have cut their prices by around 20 percent to bring in properties that will retail on average at £166,000 pounds to allow them to compete in the second hand market. However, according to a spokesman for the company a sustained improvement would not come “until the availability of mortgage finance, particularly in the higher loan-to-value segment, recovers”.

Specialist analysts for the construction industry have put a figure stating that the natural demand for the UK housing market at an average of one million units a year. However in 2008, only 500,000 houses changed hands. That means that a housing explosion is about to happen, and the private builders fear that they will miss out and fail to recover the profits they have lost in the last two years.

House builders cite high rates of inquiries at sales offices since the New Year as evidence of pent-up demand from home buyers. However potential does not pay the bills, and builders and eventually the public will begin to pressurise banks and building societies to show more flexibility.
Preference would be an increase in mortgage to property value ratio from the 70 per cent to a maximum of 90 per cent according to individual circumstances.

However analysts say that another issue that should bear scrutiny is a return to the UK standard of a realistic correlation of loan to income ratios, which rose from a standard 3.5 times joint annual salaries to the six times that became commonplace at the peak of the housing boom.

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Tags: Financial News, Mortgage, Mortgages, negative equity