Government tries to slow down UK property slump Article Published: 11:47 04/09/2008 Article Classification: Kalamon Fund
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UK house prices fell for the 7th month running in August and is now over 12% lower than the same time last year.

Britain's biggest mortgage lender HBOS, said that house prices fell by 1.8% last month, as the credit crunch had made it much harder for people to get mortgages.

The Bank of England held interest rates at 5% for the fifth month running and the government have announced a number of measures to help ease the problems in the UK market.

The Treasury said it was suspending stamp-tax duty on housing transactions for homes valued up to £175,000. The suspension will be for a year starting 3^rd September and will cost about £600m.

The government said it would spend £1.6 billion on a range of measures to help first-time home buyers and those struggling to pay their mortgages. Among the measures are restricted non-interest loans for certain buyers and allowing the government to buy housing and rent it back to tenants.

More than £25,000 has been wiped off the value of the average British home in the last year, which now averages at around £170,000 with the majority of people in the UK owning their property, this effects just about everyone.

“The situation in the housing market is concerning as there doesn’t appear to be an obvious end point. The Government’s recent measures only have a marginal effect on a relatively small number of people, but I am not sure that it will have the desired effect on confidence” said Richard Brady of Olive Tree International.

“It is fast becoming a buyers’ market, with bargains cropping up all the time as sellers become more desperate to shift their properties.”

Brady believes that the best options available for investors in the current climate are abroad. “We have believed for the past 18 months or so, that the UK market was reaching it’s natural peak and have offered alternative options for property buyers in the overseas markets. Having said that, the UK will look more and more attractive for investors, with cash, looking to pick up bargains, at the end of this year. As long as they are prepared to take a medium term view.”

"Very negative housing market sentiment heightens the risk that house prices will continue to fall sharply for some time to come," said Howard Archer, economist at Global Insight.

"Unemployment is now rising at an accelerating rate which increases the likelihood that people will have to sell their house for 'distressed' reasons. This would lead to more houses coming on to the market and would be liable to depress prices."

One of the biggest problems facing the housing market is the availability of mortgage finance in the face of the credit crunch.

The Council of Mortgage Lenders wrote to the government this week to ask for an extension of the Bank of England's Special Liquidity Scheme which closes to new lending next month, though it allows banks to roll over existing loans for up to 3 years.