Why bank move might not help house buyers

Apr 25 2008 By Jeremy Gates

£50bn bail-out no guarantee of a cheaper mortgage deal

Although the £50bn bail-out of Britain's High Street banks by the Bank of England may ease problems for the bankers, it might not give much help to buyers and sellers.

That's the warning from Henry Pryor, founder of Primemove.com, a property aggregator bringing together more than a million properties from major portals covering 90 per cent of all homes for sale.

Pryor says that lenders finally realised many mortgage offers had been too generous in recent years - and have therefore required borrowers to find larger deposits before they get a mortgage.

He said: "Even if you assume the Bank of England handout gives banks the confidence to start lending again there is no chance of an immediate return to the days of 100 per cent mortgages or that lenders will want to charge less for their few remaining products.

"The best we can expect is that they will at last start to actually provide mortgages again but rates will be higher and terms less attractive, so both sale prices and volumes will remain at reduced levels."

BoE Governor Mervyn King said the arrangement was necessary to boost liquidity, restore confidence in the banking system and "protect the rest of the economy" from the credit freeze.

While the average estate agent has a backlog of 70 properties on the books, Pryor says stock coming newly to the market is priced to compete with this older stock and all vendors are having to adjust to conditions.

"Only those vendors who have a realistic view of what they might expect to get are catching the eye of potential purchasers. That leaves nearly four in every five sellers currently without abuyer," he says.

Chris Coleman-Smith, head of auctions at leading agents Savills, shares the view that vendors still haven't woken up to the realities of the market.

"Some pockets of the market are still holding up but many estate agents and vendors haven't realised they are well behind the market," says Coleman-Smith.

"In some areas, guide prices are 20 per cent below last August, while the fall on new-build city centre flats is more than 20 per cent. Some areas are being slaughtered on valuations."

Coleman-Smith says many banks and building societies have probably made things worse for hapless purchasers trapped in the falling market.

"Last year they were readily shoving out 100 per cent mortgages. Now they are repossessing properties and shoving them into auctions at low prices at a time when it is much harder to fix a mortgage.

There is real demand for many of these, but real problems in fixing finance," he adds.

And he claims auctions currently offer plenty of attractive opportunities for first time buyers, and prices have further weakened as demand from buy-to-let investors has fallen off.

Coleman-Smith thinks Eurozone buyers could fill the gap, with Germans and Irish both likely to emerge as key investors.

"In a year's time, we will probably look back to today and say 'What a good time to buy'," he adds.

'Four in every five sellers are without a buyer'