No Silver Lining

Does every cloud have a silver lining ? Will falling house prices help those to get the first time buyers on the rung of the property ladder ? Apparently not .

Homeowners and those hoping to step onto the property ladder have both been dealt a blow after a senior Bank of England policymaker warned that house prices will fall but the impact of the credit crunch means affordability won't improve.

The global economic environment has become tougher, forcing lenders to become more cautious about extending mortgages to borrowers . First-time buyers in particular are being forced to accumulate bigger desposits, making it more difficult for them to benefit from a long-anticipated drop in house prices.

"We may see prices fall this year, but because of credit conditions, affordability will probably not improve at all," Miss Barker said. She added: "Finding deposits has become more difficult because of the credit crunch..."

British banks have raised the cost of borrowing for homebuyers with the smallest deposits to a seven-year high and have declined to pass on two Bank of England interest rate cuts. Central bank figures show that the average rate offered by lenders on loans for 95 per cent of the price of a property, fixed for two years, is 6.55 per cent - the highest since September 2000. In January, mortgage approvals were close to the lowest in nine years.
The UK housing market has slumped to the worst since the eve of the nation's last recession in 1990, a survey by the Royal Institute of Chartered Surveyors showed last month.
Too few homes are being built to meet Britain's housing needs, and that the number of new houses built would probably fall this year.