The entire world began to feel a financial crisis in the summer of 2008. While some people claim to have predicted it to happen, and those of us working within the mortgage industry knew eventually the bottom would fall out, we do not think the world was ready for the rapid decline that happened.

It is a proven fact that banks are not lending money to individuals for mortgages at the level they were a year ago. In addition to a lack of lending, there are also fewer products available in the consumer mortgage market. The positive news for the short term is that those people who have a variable rate mortgage have seen their mortgage bill drop, as the Bank of England has currently set the rate at an all time low of 0.5%. While this is bad news for those hoping to earn interest from savings, it is positive news for those with a variable rate mortgage.

To make matters worse, the press and the media continue to harp on about the Credit Crunch. The media continues to print gloom and doom stories that do nothing more than paint the bleakest picture imaginable, no matter if they are factually true or not. The worst part of the situation is that consumer confidence is based around what is read in the newspapers and what is seen on TV. The media is one of the only ways that people not directly involved in the credit crisis gets information on the state of the economy. Misleading information can be the route of serious consumer doubt, which only hurts the economy more.

BBC News has recently reported that Mortgage lending picked up in March, according to figures from the Council of Mortgage Lenders (CML).

Gross lending stood at £11.5bn, up by 16% from February but still less than half the amount lent in March 2008.

Earlier HM Revenue & Customs (HMRC) figures showed there had been a 40% jump in home sales in March.

The CML said the March increase was a normal seasonal rise and warned that lending and house sales would remain low for the “foreseeable future.”

Despite the jump in March, the lending figures for the first three months of the year were the lowest for any quarter since the start of 2001.

However Michael Coogan, director general of the Council of Mortgage Lenders (CML) said the latest figures were a step in the right direction.

“It’s a seasonal factor here that people start to look around to move house in the middle of the better weather,” he said.

“What we said at the beginning of the year was that we expected over the course of 2009, £145bn to be lent, and we are on track with that forecast, and that has to be compared with £363bn in 2007,” he added.

Picking Up

A growing number of indicators now suggest that sales may have hit rock-bottom after the dramatic slump of 2008, and could now be starting to rise.

The HMRC’s figures showed 60,000 property sales in March worth at least £40,000 each, compared with 43,000 in February.

The number of mortgages approved but not yet lent, a key indicator of future activity, has also risen recently according to the Bank of England.

And during the past few months estate agents have been reporting a rise in the number of enquiries from potential buyers.

“House price activity is beginning to pick up to a limited extent in response to the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates,” said Howard Archer, chief economist at IHS Global Insight.

Recent research conducted by The Council of Mortgage Lenders (CML) reported that at the depth of the last housing market recession in 1993, 1.5 million households or more were estimated to have negative equity. Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position. And, according to the Council of Mortgage Lenders, this is what most of today’s borrowers with reduced or negative equity are also doing.

A new research article by James Tatch, senior statistician at the Council of Mortgage Lenders, suggests that about 900,000 home-owners currently have some degree of negative equity, although the majority of these - around two thirds - face only modest shortfalls of less than 10% (equating to around £6,000 for those first-time buyers with negative equity, and £8,000 for other home-buyers).

One myth that tends to persist is that there is a strong causal link between negative equity and mortgage repayment problems. There is not. Payment problems are typically associated with unexpected spending commitments, reduced income and changes in household circumstances. Negative equity, on the other hand, only surfaces as a problem if households need to move, or are also experiencing repayment difficulties.

While reduced and negative equity are likely to constrain the ability of affected households to move house, the overall scale and impact of this for the market as a whole needs to be kept in perspective - even in today’s weaker market, the CML estimates that home-owners still have around £2.1 trillion of unmortgaged housing equity.

Bob Pannell, CML head of research, commented:

“Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

“Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected. Where people needs to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record. Otherwise, sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt. It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly.”

UK house prices plummeted by 16.2pc in 2008 in the biggest drop for a calendar year on record, according to the country’s largest mortgage lender.

The average value of a home dropped by 2.2 per cent in December, according to the latest survey from Halifax. It’s the biggest year-on-year fall since the Halifax began recording its data in 1983. The lender said the typical price of a home now stands at £159,799, back to August 2004 levels and that it fails to see much in the way of respite for the once-booming market in 2009 as the economy tumbles into recession.

Martin Ellis, chief economist at Halifax, said: “Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months.  “But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households’ finances should support market activity and prices. The house price to earnings ratio - a key affordability measure - is at its lowest for five and a half years.”

The annual drop was sharper than during the recession of the early 1990s, according to Howard Archer, chief UK and European economist at Global Insight. He expects house prices to fall by a further 15pc in 2009, on the Halifax measure.  “It is still very difficult for many people to get a mortgage or find the required larger deposit,” Mr Archer said. “Even if government measures to get banks to step up their lending increasingly take effect, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.

Andrew Montlake, of mortgage brokers Cobalt Capital, said: “It may be 2009 but the ghosts of 2008 will continue to haunt us, and for some time yet. The November mortgage lending figures from the Bank are just another grim reminder of the death, last year, of easy money and consumer confidence, and there will be many more in the months ahead.”

Halifax is part of HBOS, one of the UK banks forced to sell a large stake to the government in exchange for capital to shore up its balance sheet.

Separate figures showed mortgage approvals dropped to a record low in November, data from the Bank of England showed today.

By Myra Butterworth and Amy Wilson – Telegraph.co.uk

The number of people seeking to buy a home surged to a two-year high last month as bargain-seekers searched for repossessed and forced-sale properties at bargain-basement prices, new figures suggest.

However, the increased level of interest from potential buyers was not enough to perk up the dire situation in the housing market, with the number of sales slumping to a new 30-year low between September and November.

Estate agency branches sold an average of 10.6 houses each in England and Wales in the three months to November 30 - less than one house a week. That figure was down from 10.9 houses in the three months to October 31, a survey from the Royal Institution of Chartered Surveyors (RICS) showed. That is the lowest figure recorded since RICS began its survey in 1978.

As sales of houses fell, the prices that they achieved also continued to decline during the month, although the proportion of agents reporting price falls eased slightly. About 76.5per cent more surveyors reported that prices fell rather than rose in November, compared with 81 per cent in October.

In a symptom of the worsening outlook for house prices, which have already fallen by 18 per cent since the market peaked in summer last year, the Council of Mortgage Lenders said yesterday that it would not produce its annual forecast for house prices. The CML, which represents 98 per cent of residential mortgage lenders, said that prices would fall again next year but that the low level of transactions made it difficult to forecast how far.

Some experts said the decision could have been taken in an attempt not to talk down the market. Some economists have forecast that house prices could fall a further 15 per cent next year. One glimmer of hope in the grim RICS figures was the rise in the number of inquiries from new buyers, with more surveyors reporting that inquiries rose, rather than fell, for the first time since October 2006.

Inquiries rose sharply in the South West and the West Midlands but buyers in London and the East Midlands were still scarce, surveyors said.

There are hopes that Government plans to allow borrowers who fall into difficulties a two-year holiday on paying interest on a portion of their mortgage could reduce the number of distressed sellers, slowing the pace of house price falls. But Simon Rubinsohn, an RICS economist, said that could serve to depress the number of transactions further. House prices have been dragged down by the drought in the mortgage market, with lenders demanding large deposits.

There was a further blow to potential buyers as Lloyds TSB, which has received billions in taxpayers’ money, raised the rates on its tracker-rate mortgage deals by up to 0.4 percentage points, despite last week’s 1 percentage point cut in interest rates.

HSBC pledged to increase mortgage lending next year to £15 billion, 20 per cent above this year’s level.

But the misery for homesellers was compounded as the Government announced that its controversial Home Information Packs (HIPs) will be mandatory as soon as homeowners put their house on the market from April next year.

At present, sellers can market their home for 28 days without a HIP, which provides buyers with property information and costs about £300 to produce, if they have ordered one.

Northern Rock is the latest government-supported lender to cut its variable mortgage rate by less than one percentage point. Yesterday it announced a half-point cut in its standard variable rate to 5.34 per cent.

As reported in Times Online - Gráinne Gilmore and Rebecca O’Connor

The latest Nationwide house price index reveals that the average house price in the UK now stands at £158,442, a 0.4% decrease from October.

The year-on-year decrease from November 2007 is 13.9%, down from 14.6% last month.

Fionnuala Earley, Nationwide’s chief economist, said: “In spite of the moderation in house price falls recorded in November, with the economy in recession, conditions do not appear very favourable for a swift recovery in the housing market. The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings.

“With prices falling at their current rate there is also little incentive for new borrowers to hurry into the market. However, there are a number of measures which should provide some support to the market in general and help existing and potential homeowners in these difficult times.

“The Monetary Policy Committee’s decision to reduce interest rates by 1.5% at the November meeting took most commentators by surprise. It was a bold step and has left no doubt that the focus of their concerns has shifted from inflation to deflation.

“While not aimed directly at the housing market, such a substantial shift in the Bank Base Rate will help a significant number of existing and potential homebuyers. Different borrowers will be affected in different ways by rate cuts. The estimated one-third of borrowers on tracker mortgages will have benefitted one-for-one from Bank Base Rate cuts.”

House prices may have fallen in most areas, but some pockets of the UK remain defiant. Barney McCarthy looks at the resilient regions

After several years of phenomenal growth, house prices in the UK have hit the rocks recently, with the majority of areas registering monthly falls for most of this year. But the picture isn’t all doom and gloom for all areas, or indeed all consumers in the UK. After all, if you are a buyer with a large enough deposit and are able to secure a mortgage, you could take advantage of slightly lower prices, depending on the area in which you want to buy.

Flying the flag

Nationwide’s House Price Index for the first half of 2008 revealed that house prices are lower now than they were a year earlier in 12 out of 13 UK regions. The sole steady market was Scotland, where prices are 0.6% higher than a year ago. Fionnuala Earley, Nationwide’s chief economist, says: “Scottish house prices have already proved more resilient than prices in other UK regions during the first quarter and this trend has been sustained in the most recent quarter. On most measures of housing affordability Scotland compares quite favourably with other UK regions and this is likely to be the main reason why the correction in prices has been less drastic than elsewhere.”

Jill Burns, assistant property shop manager at Inverness-based estate agent Munro & Noble, says: “Prices in Scotland are still lower than the rest of the UK, so growth has been more stable. People still think they are picking up a bargain, particularly if they are moving into the area from somewhere else. In terms of our business, prices have remained the same, it’s just that properties are taking longer to sell.”

Margaret Sutherland, property manageress at Innes & Mackay, also in Inverness, says: “It is definitely a buyer’s market at the moment. We have 50% more properties on our books than this time last year, but it simply means there is more choice. House price growth in Scotland has always been steady and I expect it to remain stable.”

However, while the Scottish housing market has shown admirable resilience up until now, it too is starting to show the cracks evident around the rest of the UK. Despite marginal annual growth, prices have dipped slightly in the last two quarters.

Fighting the falls

It is not just Scotland that is digging its heels in as house prices slide. Nationwide’s research also highlights the ‘hottest’ towns and cities. The top five is made up of Cambridge, Canterbury, Oxford, Carlisle and Aberdeen. It is difficult to establish a geographical pattern here, but one interesting observation is that they are all home to universities. With thousands of students looking for accommodation, property investors clamouring for digs to let may have helped house prices defy national patterns.

Other factors can also contribute to individual towns bucking the trend. Halifax published research last week showing how two-thirds of market towns have a higher average house price than neighbouring areas. Martin Ellis, chief economist at Halifax, says: “Homebuyers continue to be attracted to the high quality of life, architecture, history, setting and community spirit offered by market towns and are prepared to pay a premium to live there. Most market towns have higher house prices than other towns in their county. The majority have also seen stronger house price growth than the English average over the past five years.”

Reasons to be cheerful

Reading too much into national averages and figures representing huge swathes of land will always iron out anomalies – in this case, those pockets of the UK where prices have remained steady or improved aren’t mentioned by the doom mongers. The one silver lining to the cloud hanging over the housing market is that price falls may make the bottom rung more accessible for first-time buyers, but this opportunity is tempered by the tightening of criteria among UK mortgage lenders this year. Keep a positive perspective though – all clouds eventually pass.

The latest house price index from Halifax has revealed housing affordability is improving significantly, with the house price to average earnings ratio falling below 5.0 for the first time in four and a half years.

The ratio has now fallen by 16% from its peak of 5.84 in July 2007, with the firm predicting further improvements.

House prices declined 2.2% in October, taking the average price to £168,176 – the same level as October 2005. Prices have now fallen 13.7% over the past 12 months, but remain 22% higher than five years ago.

Activity in the housing market also appears to be stabilising, with the number of mortgages approved to finance house purchase broadly unchanged in September for a third successive month, at a seasonally adjusted 33,000 compared to 32,000 in August. Approvals in the third quarter, however, were 25% lower than in quarter two.

Martin Ellis, chief economist at Halifax, said: “Housing market conditions remain challenging in the face of the significant pressures on householders’ incomes and the reduction in the availability of mortgage finance since last summer.”