Property portfolio company warns of tough times ahead

While the latest house price indices released this week point to continued stabilisation in the market, Property Portfolio Rescue (PPR) warns that we have a tough autumn ahead.

With the rate of enquiries from distressed sellers increasing in August, PPR is predicting further house price falls, increasing repossessions and a continued reluctance from banks to lend, as we head towards winter and into 2010.

Nick Hopkinson, Director of Property Portfolio Rescue (PPR), highlights five of the key challenges currently hindering a market recovery:

1. The housing market remains frozen
House prices appear to have stabilised recently but on ‘wafer thin’ sales volumes. Currently, people are only moving house at a rate equivalent to once every thirty years, double the usual period. Only the best houses in the best locations are actually selling, most homeowners are sitting tight amidst the wider economic uncertainty.

2. Household income is set to come under increasing pressure
Even if the recession technically ends this quarter, household income will come under increasing pressure within the next few months. Unemployment is surging and will only get worse as school leavers and graduates hit the job market in the next month. Pay cuts rather than increases will be the reality for most people in this environment.

3. Banks are increasing their loan costs & QE remains an unproven gamble
While interest rates remain the lowest they’ve ever been, the banks are already increasing loan costs and fees for new mortgages. Quantitative Easing remains very controversial and potentially inflationary; there is no evidence that it has done anything to increase mortgage lending as it is still almost impossible for most buyers to get a realistic new loan.

4. Arrears are surging and will fuel future repossessions
Reported slowing of repossessions in the last quarter is simply a result of Court process changes last year and political pressure on banks to show forbearance. Growing arrears indicate that this reprieve being offered by lenders to many struggling homeowners is simply delaying the inevitable, and will leave the majority of those who are in difficulty now with greater debts and facing repossession, further down the line.

5. House prices have further to fall
While reports of monthly house price rises over the summer have resulted in a sense of false optimism in the market, with many struggling homeowners trying to delay the sale of their home as they hold out for a higher price, this now looks set to change. With one leading property portal reporting a fall in asking prices in August – a trend I expect to see become more commonplace over the following months – those struggling with mortgage repayments are advised to sell now, before prices fall further and mortgage rates increase.