Housing market faces double-dip as lending gets tougher and demand remains low

Published 19 November 2010

Organisation for Economic Co-operation and Development made warning on Thursday.

Credit: Getty Images

UK and US housing markets face the danger of a possible double-dip recession, that could impede economic recovery, warned the Organisation for Economic Co-operation and Development (OECD) on Thursday.

According to the organisation, house prices continued to be high in several nations despite the slump two years ago.

"A particular downside risk is that renewed declines in house prices in the United States and the United Kingdom would have a negative effect on household balance sheets, thereby slowing consumption and raising saving rates," said the OECD in its bi-annual economic outlook.

In a separate development, UK's Council of Mortgage Lenders said that net mortgage lending will likely only be £9bn this year, as demand for property continues to be flat.

The projected figure, the lowest since 1980 is £3bn less than the official forecast for £12bn.

The council also warned that the proposed reforms of the Financial Services Authority which would tighten lending rules would impact would be borrowers in a significant manner.

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11 comments from readers

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elrob
22 November 2010 at 16:16

It is disturbingly curious that even the New Statesman reports falling house prices in the terminology (danger) of the Daily Mail, and those deluded to think that housing was not a bubble that needs to deflate. Did any of you even notice that the world economy imploded two years' ago due to high levels of debt that were being financed by funny money in securitisation markets?

Prices need to fall by a quarter from where they are. Housing is New Labour's ultimate shame. It is proof that it was a party that had lost its way, and discarded its entire reason for being.

I was disappointed to hear Ed Miliband (of whom I have possible undeliverable hopes) a few weeks ago cite the housing market decline as proof of the government's inadequate economic policies. His Labour cannot begin to find a post-Thatcherism direction if it it does not accept that Labour in office was a disaster for housing policy. Almost no-one who hasn't a home can afford one. What a legacy!

mike555
22 November 2010 at 20:49

elrob, agree with your post but surely you're confusing the Mail with the Express?

mike555
22 November 2010 at 20:51

The Mail has been one of the few sources of sense in the debt/housing bubble. Surprised at your analysis.

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Privet
30 November 2010 at 18:11

Your right Elrob,

Ed Miliband cant seriusly blame the Tories for causing the housing bubble,

unfortunately he has tried to use the favoured Labour tactic of blaming everything wrong on the Tories instead of coming up with better solutions,

housing inflation under Labour has really increased wealth disparity, but that can be ironed out by taxation to reduce the amount of buy to let portfolios & keep houses prices from increasing at that rate again, as houses doubled & trebled, wages hardly grew as i noticed.

I studied Economics & I still cant believe Gordon Brown didnt see a problem coming.

Joe Public
09 December 2010 at 17:50

Everyone I know earns between £12k-£24k per annum.

From 1987 to 1997 the Average House Price rose from £40k to £55k.

A 33.3% rise over ten years.

From 1997 to 2007, the Average House Price rose from £55k to £190k [Nationwide Building Society figures]

A staggering 245.5% increase over the same period. [Ten years.]

The reasons for this are entirely the Labour Parties Fault.

1. "In America, the Glass-Steagall Act had protected deposit-taking commercial banks from the risky activities of the investment banks. Congress was effectively obliged to repeal the Act in 1999 because New York was losing its business to London, which had no such restrictions and the "light touch" regulation encouraged by Gordon Brown. Had Britain [Brown] enacted similar legislation to Glass-Steagall, the US Act would not have been repealed, the City would have made less money but the banking collapse in both America and Britain would have been avoided"

2. Complete failure to build social housing. Labour built , an average of 26,000 fewer homes each year between 1997 and 2009. Under Tony Blair and Gordon Brown, the country witnessed the lowest level of house building in peacetime since 1924

3. The tripartite system put in place by New Labour to regulate the economy was a direct cause for the financial crisis.

The tripartite system was created when Mr Brown – as chancellor – made the Bank of England independent as soon as Labour came to power in 1997.

It included the Bank of England, the FSA and the Treasury,

Lord Vallance, chairman of the House of Lords economics affairs committee. [Tasked to look into the causes of the Crisis]

* "It is clear that in the UK the tripartite authorities of the Bank of England, FSA, and the Treasury failed to maintain financial stability, in part because it was not clear who was in charge in a crisis and because not enough attention was paid to macro-prudential supervision – oversight of the aggregate effect of the actions of individual banks – in the period when 'boom and bust' occured.

4.In his 1997 budget, Brown abolished dividend tax credits on pension funds. Companies saw the writing on the wall and immediately ended their final salary pension schemes to new employees shortly after the 'Brown raid'.* The value of pension funds have since lost around £5bn per year since the 1997 tax relief cuts. Pension funds holding the cash that almost everyone in the country had planned to use for our retirement have lost around £100 billion over 12 years. [1997-2007]

The advice Brown was given by this Treasury Paper, in 1997 was as follows:

'The changes in incentives are likely to lead to substantial changes in portfolios. Pension funds will find equity relatively less attractive, and will prefer other assets – particularly interest bearing securities and foreign equity – and may also be prompted to consider more direct property investment.'

Those funds were then channelled into fuelling an unsustainable property bubble, {BTL portfolios,} which developed because of Labours complete lack of regulation of the Banks.This was followed by rising house prices, ever increasing toxic mortgage debt, and this was followed by the bank bailouts.

Roughly 60% of houses historically acquired by First Time Buyers, were then acquired by the Buy To Let brigade. This figure rose year on year, from 1998-2003.

FTBers were priced out completely.

This is just one example of Gordon Browns incompetent decision making which helped to create the cornerstone of the debt bubble.

5.Brown had every opportunity to face the problem. Instead in 2003 Brown switched the housing inflation figures from RPI to CPI, hiding the debt. Same thing he did with PFI.

THESE are the reasons house prices rose to astronomical unsustainable levels.

Without the bank bailouts, house prices would have crashed by 60% plus.

So the only reason they have not crashed is because of Government theft of our taxes and QE.

Ive been renting for years.

So the theft of our taxes, and the devaluation of the pound in our pockets, via QE, to pay for this toxic mortgage debt.

Is In effect, forcing us to pay for others houses, whilst keeping house prices massively overinflated, ensuring we can never afford our own house. Working for nothing. No capital.

We have been forced to waste tens upon tens of thousands, paying off the mortgage of a liar loan landlord, as house prices have risen further and further out of our reach year after year. He does not have to work. We have paid for his lifestyle. Even though he is a criminal. We are now having our money stolen to pay off the bank which loaned the money to him. It is entirely the fault of Labour.

[Whilst our lcal labour MP ignored our Emails for years, until it transpired she was flipping houses, making over £200k in personal profits, in a secret 'housing' expenses system, where it was in her interests for house prices to rise.]So thats why she didnt answer us, and why she had been voting for policies to inflate the house price bubble.]

LABOUR ARE TO BLAME. PERIOD.

Joe Public
09 December 2010 at 17:53

In 2009 When the Telegraph first broke the expenses scandal.

Gordon Brown and LABOUR forced a three line whip, to try to exempt MP's second home expenses from the Freedom Of Information act.

From being made public. [Both the Tories and Lib dems voted in favour of MP's expenses for second homes being made public.]

Sir Ian Kennedy, chairman of the new Independent Parliamentary Standards Authority (Ipsa) ruled that Ministers should repay profits on their second homes.

However, that only applies to gains from November 2009!

So profits from massive House Price Increases UP TO November 2009, were locked in.

HPI was all cream for our elected officials.

[Profits from second homes needed to be backdated to 1997.]

The truth is that there was never any political will to enable the average person earning average wage to be able to afford an average house in a rising unregulated market, under a secret expenses system, where MP's were all flipping houses, making hundreds of thousands in personal profits.

Not one MP represented the average wage earner.

It is not just that they used our money to profit, and paid no tax on the gains, it is also that it created a dangerous conflict of interest that meant that voting for policies which fed the house price bubble, for so many years, such as keeping IR too low for too long, CGT etc, also generated personal profits for them, in secret.

EDIT: *[This is far worse than insider trading]*

And now we see nothing has changed. [Whilst they are allowed to profit in this fashion, we will never see a tax on BTL. We will never see affordable housing]

Words Fail me. I honestly believe if MPs had not been making personal profits on second home expenses for all those years, in secret, then rising house prices would have been examined a lot more closely. Probably ten years ago.

The source of our misery, is the same source as their profit. [It is not merely 'sharp practice'. Its criminal behaviour]

These MP's are acting in a manner contrary to the rules of parliament, and should be fired. And Fined. At the Very Least.

I would like to see someone burn these MP's houses to the ground.

Notice how the media never focus on this angle? For them its all about Moats and Birdhouses.

Labour along with the banks have performed the greatest fraud in history and gotten away with it.