In 2006, there were 1,669,000 residential property transactions in the UK and the level of activity hardly changed the following year.
By 2008, however, sentiment had deteriorated and there were 917,000 transactions. For the last three years, the figure has hovered around 860,000.
So why has the number of housing transactions collapsed so spectacularly?
There is a mixture of supply and demand issues. On the demand side, confidence has certainly fallen. Reductions in real incomes occurring, as a result both of high inflation, low increases in average earnings, rising unemployment and rising taxation, have clearly led to a decline in demand for housing and mortgages.
Furthermore, potential purchasers can afford to take their time, secure in the knowledge, generally speaking, that house prices will be broadly the same in three, six or even 12 months’ time as they are now.
There is also ready availability – albeit at rising cost – of private sector rented accommodation. The recent English Housing Survey shows there was a growth in this sector in 2010/11 with 16.5% of households in rented accommodation, up from 15.6% in 2009/10.
There are mortgage supply side issues, however.
There is no doubt that first-time buyers, on average, are required by lenders to provide larger deposits than was the case before the financial crisis. Having said that, many mutuals offer higher loan-to-value products; up to 95% for creditworthy borrowers.
Some seem to take the view that lenders are unnecessarily imposing lending restrictions.
However, with the general funding shortage in the wholesale markets and the cost of retail funds significantly out of line with the Bank of England intervention rate, it is not always as easy to obtain the funds that are necessary to meet even that reduced level of demand that is present in the market.
Moreover, high percentage advances require more capital backing by lenders.
It seems unlikely that we will see market-wide solutions in the near future. Schemes such as shared ownership, shared equity and the soon to launched NewBuy scheme will help on the margins.
Yet, there has been a fundamental change in housing market conditions.
The economy is weak, funding is less available, owner occupation is falling and consumer confidence is in short supply.
It will take some years before we get back to a more recognisable market – which will be nothing like what we regarded as ‘normal’ in 2003 to 2007.
It will, however, be characterised by a level of activity, turnover and mortgage lending somewhat higher than we have at the moment.
Adrian Coles is director-general of the BSA
