Property News > Property Prices and Bank Lending

Property Prices and Bank Lending

The state of the world's economy is in crisis and its effects are being felt by the lenders and home owners. The average price of a home in the UK has been falling continuously since the autumn of 2007. Although, the lending institutions are trying their best to stop the credit crunch but it seems that all the efforts are in vain; at least for the time being. The buyers are feeling the sting of the mortgage approval rates that have declined significantly to only 60.7 percent. Those that have been approved are not something to brag about. According to the British Bankers Association, the average price of the mortgage approval was only £117,000 in 2008. Major PlayersThe reaction of the banks is in direct relation to the house prices. More lenders are now awaiting financial assistance from the UK government to approve more loans. The government has stepped up its efforts to bail out the UK banking system by providing nearly £500 billion of the public money. Despite such hectic efforts, it remains to be seen if the plan has any significance. Halifax and Nationwide have already announced, what may be called recovery packages. Halifax has even gone a step further by passing out 0.5 percent of the initial interest rate cuts to the consumer. Still it's the buyer and sellers who decide the eventual outcome. The house prices are still down mainly due to a very cautious buyer who is waiting to gauge the results of the recent efforts. As a consequence of such a behavior, there are fewer buyers and the lending institutions are reluctant to give the remaining stockpile to every potential buyer. What Next?Experts agree that this tit for tat scenario will keep the lenders from giving large loans unless the home prices rebound. Furthermore, the lending has receded due to the lenders own concern over the rising unemployment and low income. They average income of a UK worker has increased only 3.5% in comparison to a 5% increase in the retail price index. What lenders worry is the inability of the borrowers to pay of their debts, if the economy doesn't stabilize. Whatever the case may be, one thing is for sure that the UK property value will not rebound if both consumers and lenders remain skeptic about the future. Without a strong consumer sentiment, the declining house prices will mean little incentive for the lenders even if there is a drastic cut in interest rates.The FutureAs discussed, the average price of the new borrowings has declined which is 24% lower than the last year. In order to compensate, the banks are demanding a larger deposit to secure a loan. The Council of Mortgage Lenders, which accounts for more than 98% of the residential mortgage, has stopped predicting the house prices due to uncertainties surrounding the housing markets. Everyone is waiting but all agree that the next six months may provide a definite clue regarding the state of UK property prices.


 

The state of the world's economy is in crisis and its effects are being felt by the lenders and home owners. The average price of a home in the UK has been falling continuously since the autumn of 2007. Although, the lending institutions are trying their best to stop the credit crunch but it seems that all the efforts are in vain; at least for the time being.

The buyers are feeling the sting of the mortgage approval rates that have declined significantly to only 60.7 percent. Those that have been approved are not something to brag about. According to the British Bankers Association, the average price of the mortgage approval was only £117,000 in 2008.

Major Players

The reaction of the banks is in direct relation to the house prices. More lenders are now awaiting financial assistance from the UK government to approve more loans. The government has stepped up its efforts to bail out the UK banking system by providing nearly £500 billion of the public money. Despite such hectic efforts, it remains to be seen if the plan has any significance.

Halifax and Nationwide have already announced, what may be called recovery packages. Halifax has even gone a step further by passing out 0.5 percent of the initial interest rate cuts to the consumer. Still it's the buyer and sellers who decide the eventual outcome. The house prices are still down mainly due to a very cautious buyer who is waiting to gauge the results of the recent efforts. As a consequence of such a behavior, there are fewer buyers and the lending institutions are reluctant to give the remaining stockpile to every potential buyer.

What Next?

Experts agree that this tit for tat scenario will keep the lenders from giving large loans unless the home prices rebound. Furthermore, the lending has receded due to the lenders own concern over the rising unemployment and low income. They average income of a UK worker has increased only 3.5% in comparison to a 5% increase in the retail price index. What lenders worry is the inability of the borrowers to pay of their debts, if the economy doesn't stabilize. Whatever the case may be, one thing is for sure that the UK property value will not rebound if both consumers and lenders remain skeptic about the future. Without a strong consumer sentiment, the declining house prices will mean little incentive for the lenders even if there is a drastic cut in interest rates.

The Future

As discussed, the average price of the new borrowings has declined which is 24% lower than the last year. In order to compensate, the banks are demanding a larger deposit to secure a loan. The Council of Mortgage Lenders, which accounts for more than 98% of the residential mortgage, has stopped predicting the house prices due to uncertainties surrounding the housing markets. Everyone is waiting but all agree that the next six months may provide a definite clue regarding the state of UK property prices.

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