Britain's housing market is heading for a painful correction,
Alan Greenspan, the former head of America's central
bank, the Federal Reserve, predicted in an interview
with The Daily Telegraph this week.
He also warned that Britain is more vulnerable to the
effects of the credit crunch than the US.
Greenspan, who was the central banker for several United
States presidents, says The Bank of England’s decision
to raise interest rates five times in the past year to
their current 5.75 per cent means difficult times ahead
for UK home owners.
His comments come only days after the Bank of England
was forced to bail out the mortgage lender Northern Rock,
amid the escalating credit crunch in the City and markets
around the world.
Worried customers withdrew £2bn from their Northern
Rock accounts after the news came out that the Bank of
England had to step in with a loan to prevent the bank
from collapsing.
Responding to a joint press release from the Bank of
England, HM Treasury and the FSA, the Council of Mortgage
Lenders emphasises that the issue facing lenders at the
moment is one of liquidity and funding, not lending quality.
The FSA has said that Northern Rock is “solvent,
exceeds its regulatory capital requirement, and has a
good quality loan book.
“
Northern Rock’s savers and borrowers can therefore
have confidence that the loan arrangements with the Bank
of England do not reflect any underlying business problems,
but are a reflection of a general lack of confidence
in the financial markets, which is making it more difficult
for all lenders to raise funds from the markets.”
Michael Coogan, CML Director General, said: “Consumers
need to understand that the problem for lenders generally
at the moment is in raising funds, not in lending quality.
“
The Bank of England would not have provided the loan
to Northern Rock if it had concerns about the quality
of the lender’s own business.
“
Lenders are facing funding pressure at the moment, and
what they need is a return to more normal market conditions
as quickly as possible. We welcome the Bank’s intervention
and confirmation that it is keeping a close eye on the
situation.”
The British Bankers’ Association agreed. “The
Northern Rock is a sound and safe bank and there is absolutely
no reason for either mortgage customers or savers to
worry. All today's announcement from the Bank of England,
Treasury and the Financial Services Authority means is
that the Northern Rock has had to make alternative arrangements
to meet its normal everyday short term borrowing requirements.
“
The British banking system is carefully regulated and
overseen which ensures that all banks operate safely
and prudently in the interest of their customers.”
• House
price growth turned negative in August as demand slowed
sharply, says RICS’ UK housing market survey
published this week.
The negative growth was experienced for the first time
since October 2005. The trend downwards was most prevalent
in the West Midlands, the North West and East Anglia.
However, London is yet to be affected by credit market
turmoil and remains the region with the strongest price
growth in England.
New Buyer enquiries declined for the ninth consecutive
month and new instructions to sell property fell for
the third month in succession.
Confidence in household finances remains strong and vendors
remain under little pressure to sell. Significantly the
number of 4 bedroom houses on the market have declined
by 51 percent on year ago levels, possibly pushed by
the August HIPS deadline. However, the ratio of completed
sales compared to the stock of unsold property increased.
Market conditions have been loosening since April, but
are now slightly tighter.
Weakening demand, caused by the interest rate cycle,
has severely dented surveyor confidence in the outlook
for house prices.
RICS spokesman, Ian Perry, said: “Potential house
buyers have become far more cautious as they wait and
see what affect interest rate rises will have on household
finances. Affordability is at its most stretched in over
a decade and many will worry that rising mortgage repayments
will prove a step to far. The market will soften further,
going into the autumn, reducing some impetus from those
that have been chasing a rapidly moving target. HIPS
have reduced the number of four bedroom family properties
coming onto the market, making family homes even more
difficult to purchase.”
