Britain’s housing market will become a direct casualty of the credit crunch with the pain felt unevenly across the regions, credit information firm Experian says.
Experian predicted house prices over the next two years would record the lowest annual increases since the mid-1990s, while repossessions would reach 15-year highs.
The report comes two days after Bovis Homes, Britain’s fifth biggest housebuilder, warned that turmoil in financial markets was undermining confidence among house buyers.
The government’s ambitious housebuilding targets have been struck a fresh blow after an advisory body suggested that they are, in fact, not ambitious enough.
According to the National Housing and Planning Advice Unit (NHPAU), the current aim of building three million homes by 2020, the equivalent of 240,000 each year, will not stop first-time buyers from finding it even harder to buy a home in the future.
Consequently the target should be raised to 270,000 a year, but even this will only serve to keep the price/income ratio at its current level, the group added.
“If the government proceeds as planned, house prices will continue to out pace earnings leaving those with aspirations to home ownership cast adrift,” advised Jill Craig, head of policy and public affairs at Rics.
House prices in the UK are overpriced by as much as 40 per cent and the bubble might burst – that’s the stark warning by the International Monetary Fund.
The IMF says Britain is one of several European markets “vulnerable to a correction” and could experience the same downturn as has happened in the United States.
Home owners are paying more on their monthly mortgage repayments than at any time since the property crash in 1992, according to official figures.
The figures come as increasing evidence emerges that the property market is heading for a sharp slow-down, as mortgage rates increase and people find it increasingly difficult to get on the housing ladder.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS), said: “All the data is showing a broad pattern — the market is quite stretched by any valuation yardstick.”
The average household who took out a mortgage in August is having to use 18·2 per cent of its pre-tax income to pay the interest on a mortgage, up from 17·9 per cent in July and the highest level for 15 years, according to the figures published by the Council of Mortgage Lenders (CML).
But Ed Stansfield, a property economist, warned that most people are spending a great deal more on their mortgages than these statistics suggest.
“The CML figures markedly understate the real position people find themselves in,” Mr Stansfield said.
“They only take into account the interest payments; and for most people the repayment part of the mortgage adds a fair old chunk to their monthly payments.”
Seven out of 10 homes repossessed in recent months were owned by people who bought them with the help of so-called “sub-prime” mortgages – designed for buyers with bad credit records.
Research shows that sub-prime mortgage lenders are responsible for more than 70 per cent of 7,000 homes repossessed in the last three months.
There are no official figures for how large the sub-prime market is in the UK, but property experts estimate these loans account for less than 10 per cent of the total number of outstanding mortgages.
However, they have increased in popularity in recent years as people, finding it increasingly difficult to get on the housing ladder, are prepared to take high-cost loans to buy their own homes.
Sub-prime lenders tend to charge far higher interest rates because of the home owners’ higher risk of default.
Estate agents across Britain are slashing asking prices by up to 20 per cent in a bid to shift properties that have sat on their books for months.
Soaring house prices, five mortgage rate hikes in a little over year, Home Information Packs and a crisis of confidence triggered by Northern Rock are threatening to send house prices tumbling.
Alan Emery, of Ocean estate agents in Bristol, said: “This time last year we had 80 properties to sell and now we have 240… A house that might have sold at £290,000 will be put on the market this year at £250,000 and will still struggle to sell.”
Sarah Nixon, of Nottingham-based Hammond Harwood, said the market was “dead”. “It’s frightening. We have properties which have been on the books for months and months, which have suffered price reduction after price reduction but are still not selling.”
Paul Wilson, of Dacre, Son & Hartley, said the market in Leeds and Yorkshire was “very, very hard”. “Sellers do understand what is going on, and if they want to sell, they have to cut their prices. Unfortunately this isn’t working either.”
House prices are at their least affordable since before the 1992 property crash, with one in four households unable to buy their own home.
Most buyers now need a mortgage equivalent to five times their salary to get on the property ladder, according to research.
Hometrack, a housing data company, said the ratio of house price to income had reached “unprecedented levels.”
There are 40 local authority areas where house price to income ratios are greater than 5.5 and just 19 areas where property costs less than three times earnings, the traditional multiple that mortgage lenders will advance.
Kensington and Chelsea in London is the least affordable area, with a house price to local household income ratio of 9.23