House prices still falling, says Nationwide, but new Funding for Lending Initiative could bring about change!
Nationwide announced this week that house prices are still falling. They say house prices have fallen for the fourth time in five months. The fall of 0.7% in July means prices are now 2.6% lower than they were a year ago, at an average of £164,389.
On Monday, figures indicated that the property market is heading for a new downturn, with new mortgage approvals at their lowest since 2010. The Nationwide said the decline in house prices was due to the current recession.
"This disappointing outturn can be only partly explained by unusually wet weather and the impact of an extra bank holiday during the quarter," said the society's chief economist, Robert Gardner .
Earlier this year the market experienced a brief flurry of sales as some homeowners brought forward their purchases to take advantage of the stamp duty holiday for first-time buyers, before it expired on 24 March. Boosted by cash sales, where no mortgage is needed, overall house sales across the UK were 11% higher in the first six months of the year than in the same period last year. But the number of new mortgages approved, but not yet lent - a key indicator of forthcoming trends - fell sharply in June. At 44,192 they were down 10% on June last year and were also at their lowest level since December 2010. This suggests that the already low levels of sales may tail off in the coming months.
NEW LENDING SCHEME
However, the new Funding for Lending Initiative may see a well needed change and improvement.
Under the Funding for Lending initiative, the Bank of England will lend money at below-market rates to the financial institutions. The Bank will then monitor their progress in lending the cash out. Some mortgage lenders have already cut the cost of their long-term, fixed-rate deals. But the lower borrowing costs being introduced by mortgage lenders are so far only being offered to people with large deposits.
According to the Bank of England, the Funding for Lending scheme (FLS) is "designed to incentivise banks and building societies to boost their lending to UK households and non-financial companies".
The programme will supersede the current National Loan Guarantee Scheme.
In the past couple of weeks several of the UK's biggest lenders - NatWest, HSBC, Santander and now the Nationwide - have cut their mortgage rates to below 3% for new, four or five-year, fixed-rate deals.
The British Bankers' Association, which represents the UK's banks, said it welcomed the FLS.