Glimmers of hope are emerging in the residential property market, with mortgage lending rising, inter-bank lending rates falling and the prospect of further moves by the world's major central banks to again cut base rates.
Lending improves
After a year of declining mortgage lending, there was an increase in the number of home loans approved in September. The improvement appears to be the result, in particular, of the temporary rise in stamp duty threshold to £175,000 at the start of the month.
Figures released by the Bank of England were supported by separate statistics produced by the Building Societies Association. However, lending - using the BSA figures - remains little more than half the level of a year before.
Adrian Coles, director general of the BSA, said: "With the housing market depressed as house prices continue falling and with confidence amongst potential homebuyers low, it is no surprise that mortgage lending is down on last year, and the mortgage market is unlikely to recover for some time. Nevertheless, the increase in net lending in September is to be welcomed."
Further interest rate cuts?
There are now hopes of further interest rate cuts, following coordinated action by major central banks cutting base rates by half a per cent earlier this month and the latest move by the US Federal Reserve to cut its base rate by a further half per cent. Gordon Brown appeared to encourage the Bank of England to cut rates again. In an interview with the BBC, the Prime Minister said that falling inflation "gives scope to all the monetary authorities, including the Bank of England, round the world, to make a decision about interest rates".
Optimism has also been generated by persistent falls in the overnight and three month inter-bank (Libor) interest rates. "The twelfth consecutive fall in the Libor rate will bring a welcome boost to homebuyers, as the freeze in interbank lending begins to thaw," commented Nick Rhodes of Independent Mortgage Helpline, an advisory firm. "The huge injection of cash by the Government's rescue plan is beginning to filter through the markets, giving banks the confidence to start lending to one another again.
"We can expect to see a positive knock-on effect over the coming weeks as competition returns to the market, bringing more choice to consumers. Prepare to see lenders increasing the number of mortgage deals on the market and more favourable rates, which can only be good news for homebuyers."
Not all is positive
But it is too early to celebrate a property market recovery, with continued and varied signs of a depressed environment. The indications are that, in some respects, things will carry on getting worse before they get much better.
In particular, the Financial Services Authority has revealed that repossessions by mortgage lenders rose 71% in the last year, with 11,054 new cases in the second quarter of 2008. While there has not been an increase in the number of new arrears cases being handled by mortgage lenders, it seems that those borrowers already in arrears are less able to get back on track as the wider economy worsens. As a result, there is an increase in the total number of borrowers in arrears and in the total amount of lending in arrears.
Not only has lending reduced over the course of this year, but the FSA's figures also showed that lenders have tightened lending conditions. Lending to borrowers with impaired credit histories fell from 3.4% to 2.1% of new lending.
No early price recovery
It also seems as if property prices will be slow to recover. According to predictions from the Centre for Economics and Business Research, house prices will not return to their peak of last year until 2013. CEBR infers further falls in property values until the end of next year.
The CEBR's predictions also imply that as many as 2.5 million mortgage borrowers could become subject to 'negative equity' - owing more on their mortgages than the market value of their homes.
