British House Prices continue falling

I do not think it will come as a surprise to anyone that British home prices are continuing on their downward trend. According to the Department of Communities and Local Government (DCLG), house prices fell in December to February this year by 12.3 percent compared to last year, and the average house price is now around £189,000.

This is strangely at odds with the recent report from Nationwide that house prices had actually increased in March and according to the Royal Institute of Chartered Surveyors, housing confidence was at its strongest for 13 months.

Why the discrepancy? - easy.

1. Volumes. Volumes are down - way down. Sales of lower priced homes are almost at a standstill. Meaning what is selling is in the more expensive price ranges. This will bring median prices up, despite the fact that what is selling is selling at a discount.

2. Nationwide only reports on homes they have provided a mortgage for. No cash sales or swaps included.

3. RICS have a vested interest in talking up the housing market. More sales means more work means more commisions.

So - you can take with a large pinch of salt any statistics or information from these sources. I wouldn't go so far as to call them liars, but they certainly bend the statistics to suit themselves. Some time back I made a prediction where British property prices would end up, and I stick by that. The latest suggestion of a cap on mortgage lending by the FSA is almost certain to help bring prices down further.

According to The Telegraph, an number of "experts" believe this will be "suicidal," for the housing market. I beg to differ - if anyone still feels that we should not have some mandatory lending limits imposed on the financial institutions - they need their head examined. Blaming the current crisis (as the Telegraph does here) on the "famine in the mortgage market," is one of the most stupid statements I have heard recently.

Any fool can see that the problem was caused by over lending non-existent money to poor risks and it is going to take us years to repair the damage this has done. If we ever can.

But according to a so-called expert, Sue Anderson of the Council of Mortgage Lending, her opinion on a mortgage cap is "we believe that anything that tends towards proscription is somewhat arbitrary."

I suggest what Ms. Anderson needs is a dictionary.

According to the Telegraph article, Downing street is pressing for a cap on mortgages of three times salary. If this is indeed the case, it is the first sensible piece of news I have heard from said street. And Gordon "no more boom and bust" Brown will have to live with the fact that this will mean another 60% or so fall in prices.

Expect a return to rational lending. Meaning three times salary for mortgages, meaning British property prices will fall until average prices are three times average salaries. Then is the time to buy property as a long term investment.