Anthony Devlin - PA Wire
Hoping that house prices enjoy a summer bounce? Don't bet on it. The chances are that we have several years yet before the huge bubble that peaked in 2007 is fully digested.
The economy remains weak, affordability has barely improved and finance is still hard to come by for those who can't muster a large deposit.
No wonder buyer confidence is poor. The only reason that prices haven't braked faster is that interest rates remain at record lows.
"We've had 26 months of 0.5% interest rates. That's the longest period of stability since 1939-1951," Miles Shipside, commercial director of property website rightmove, told MSN Money.
So instead of a giant pop in the bubble, it's been more of a slow puncture. But the fact remains that the key to any recovery, better availability of mortgage finance, just isn't there. Why is that?
Well, we can once again blame the banks. Read on to see why.
Latest data shows ongoing pressure
The latest snapshot of house prices from the Halifax this week underlines the continuing pressure. Prices in April were 3.7% lower than a year ago, with the average home costing £161,000. That echoes similar findings from the Nationwide building society.
"The underlying trend in house prices continues to be one of modest decline," said Martin Ellis, housing economist for the Halifax.
All this points to several more years of static or falling house prices until we reach a point where affordability has improved enough for the average household, net income £21,000, to buy that £161,000 average home.
That sounds a stretch. It is, especially for those with little or no savings.
Mortgage lending remains subdued
But don't take my word for it. Mortgage lending in March was 11% below that of a year ago and 8% lower than the average of the previous six months. Much of this was remortgage activity too, rather than lending for new purchases. That doesn't sound like a fanfare of economic recovery.
The influential National Institute of Economic and Social Research (NIESR) last week forecast that house prices would fall by 4.5% this year and that they would continue to drop by 1.5% for the next four years on average.
"House prices have been overvalued for much of the past decade, but with current low borrowing costs they look about right. However, borrowing costs are likely to rise over the next five years as policy rates set by the Bank of England move from crisis levels near zero to normal levels of around 5%," NIESR said.
Waiting for better mortgage deals
"House prices are unlikely to change much until we have an improvement in mortgage finance, but that in turn is only likely when interest rates start to rise," said Ray Boulger, senior technical manager at mortgage broker John Charcol. Like many commentators, he doesn't see any rise in interest rates this year.
However, he isn't quite as pessimistic as the NIESR about the five years ahead. "My gut feeling over five years is that house prices are more likely to slightly outperform inflation than underperform it," Boulger told MSN Money.
A yawning regional gap
There are huge regional differences, however. According to Land Registry data, prices in London were 0.8% higher in March than a year ago, but the south east as a whole was down 0.7%.
But prices in the north and Wales are doing poorly. Yorkshire and Humberside fell by 5.3% in the year to end March, Wales by 7.2% and the north east by 9.3% according to the Land Registry. Many of these regions are now below the previous trough set in April 2009.
A Halifax survey of affordability for key workers - fire fighters, nurses, teachers, police officers and paramedics - casts an interesting light on the difficulties of buying a home for those essential staff who have to be present in every part of the country.
On the face of it, the fall in house prices since 2007 has helped affordability, with 28% of towns and cities affordable for these key workers now compared with just 1% in 2007.
However, the Halifax data shows that these vital staff still cannot afford to buy a home in two-thirds of the towns and cities in the UK. Back in 2001, only a third of locations were unaffordable to them.
Stamp duty measure: no effect yet
The scrapping of stamp duty for first-time buyers in March's Budget didn't seem to help much either. Only 26.3% of homebuyers that month were first-time buyers, a rise of 0.5% from the previous survey in January. Yet first-time buyers are vital; the only source of fresh earning power to support expanded credit.
Things may get tougher still for first-time buyers, Boulger noted. The EU draft mortgage credit directive, published on 30 March, may not take effect for a couple of years but it will make it even harder for developers to channel credit to buyers of new homes.
"Small developers are already finding it very difficult to get funds," he said, adding that when 'second charge lending' starts being regulated by the Financial Services Authority or its successor organisation in a couple of years builders are likely to find it too onerous. "I think we'll see a lot of these shared equity schemes by developers vanish," he said.
Green shoots: there are some
Those looking for the green shoots of revival will have to dig deeply, but they are there. Underlying the weak economy is a swelling shortage of homes, which at some stage is bound to make itself felt in increased demand and higher prices.
UK household formation, made up of youngsters leaving home, net migration and divorce, is running at 240,000 a year, whereas house building is trundling along at just 100,000 homes a year.
Now many of those new households won't be able to get on the housing ladder but they are already making themselves felt in the rental market. According to FindaProperty.com, rents are 4.9% higher in March than a year earlier, with landlords asking an average £40 a month more now than they were then.
"The lack of supply is continuing to exacerbate the problem, driving up rents even further, and it doesn't look like this situation will change in the short term," said Samantha Baden, property analyst at the website. The average national rent stands at £860 a month.
And it is clear that these are largely people who would like to be on the property ladder, if only the right kind of mortgage deals were available. There is massive pent-up demand for housing. "It really does depend on the availability of finance," rightmove's Miles Shipside said.
Some signs of higher loan-to-value mortgages
Although mortgage availability is much tighter than it was before 2007, there are a few signs of better offers in high loan-to-value mortgages. Both the Nationwide and Skipton building societies now have 95% mortgages available. In most cases, those who cannot put down 25% of the value of the home they intend to buy are going to have to pay a fair bit more for the extra credit.
But what about the prospects for the extra mortgage finance that the experts agree is needed to boost the market? Well, this is where the tail end of the financial crisis and the problems with home loans dovetail.
Each time that Britain's banks have to set aside billions against dodgy loans in Ireland, each provision against mis-sold payment protection insurance policies, and each new requirement for capital from regulators puts back the day when the housing market can return to normal.
"We always think 'just one more year and things will recover', but there always seems to be another set of problems on banks' balance sheets," Miles Shipside noted.
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