Housing recession creeping closer as Barratt cuts jobs
Leading economists predicted yesterday that house prices will fall by 35 per cent by the end of next year, as lender Halifax reported a 2 per cent slump in values last month.
Britain’s biggest mortgage lender said that house prices are already 6.1 per cent lower than last June, fuelling fears Britain is heading for a 1990s style property crash.
The cost of a home is now back to August 2006 levels, Halifax said. Brigid O’Leary, economist at Capital Economics, said that if values do plunge by 35 per cent by 2009, average house prices would be back to what they were in 2003.
“Our prediction is that things are going to get worse. Mortgage approvals are at record lows, which are a pretty good indicator of what will happen in the housing market six months from here. If the credit markets remain tight and mortgage rates remain high, there is nothing to see the situation improving.”
Halifax reported that the average cost of a house in Britain fell from £183,984 in May to £180,344 last month.
Martin Ellis, chief economist at Halifax, said the squeeze on consumer spending power and the lack of mortgage availability had hit the housing market.
Halifax said that prices remain 2 per cent higher than two years ago, 10 per cent higher than in June 2005 and 40 per cent above the same month in 2003.
The gloom was echoed by the Royal Institution of Chartered Surveyors (RICS) yesterday which said a first time buyer on a low income must save a year of take home pay to afford a home.
Meanwhile house building giant Barratt announced yesterday it was cutting 1,200 jobs to cap a torrid week in the construction industry, an industry suffering intensely from the crunch. In a trading update it said it had renegotiated £400m of lending agreements.
Analysts estimated the relaxing of its covenants will have cost the firm around £30m.
City Views: Should the bank have cut interest rates?
Charlie Grundy (MD Structured Finance, CIFG): “You really can’t lower interest rates with the threat of inflation. The bank made the right choice, but it probably won’t make people very happy. We’re going to go through a period of pain, but it was still the right decision.”
Gavin Harvey (Computer Programmer at Rothschild): “Inflation isn’t caused by wage rises or anything like that. It’s caused by sourced goods, like oil and food, which aren’t related to interest rates. Keeping the rates level was a smart decision. I don’t think ra:ising or cutting them would improve the situation.”
Gary Smith (Sales Manager at Shred-It UK): “I suppose it was a good decision. I’m not surprised by it. The government and the bank needed to reach some type of consensus, and this was the smartest choice for the time being. It’s depressing at the moment – the way things are going, it can’t get much worse.”