LONDON // The housing market in the United Kingdom is close to collapse, posing yet more problems for the government of Gordon Brown. It emerged yesterday that housing sales were at an all-time low while the number being repossessed because borrowers could not keep up their mortgage repayments had risen by 48 per cent in the past year.
The Royal Institute of Chartered Surveyors reported yesterday that its members each sold fewer than five houses a month between May and July this year, the lowest figure ever recorded by the institute. Last week, figures from the Halifax, the country's largest mortgage lender, showed that house prices in July were 11 per cent lower than they were in July 2007 - the first double-digit percentage fall the Halifax had recorded since it began keeping records 23 years ago.
The trend in the collapsing UK housing market reflects what has been happening in the United States as a result of the disastrous fallout from the subprime mortgages fiasco, where people were lent more than they could ever afford, once low introductory mortgage rate offers had ended. In Britain, however, the situation is made worse by what appears to be government indecision on whether to take action to boost the market.
Early last week, a tabloid newspaper reported that Alistair Darling, Mr Brown's successor as chancellor of the exchequer, was considering abolishing or at least suspending stamp duty, a tax that adds four per cent to the cost of a home worth £500,000 (Dh3.5million). On the BBC last week, Mr Darling had the opportunity to deny the move, but instead he merely said he was considering "a range of options" to breathe new life into the housing market. This only fuelled speculation that a stamp duty "holiday" was in the offing, in a ploy reminiscent of a tactic adopted by John Major's Conservative government when the housing market was last in crisis in 1991.
So people about to complete the purchase of new homes have suddenly put everything on hold, hoping that if they wait a few days or weeks, they will get the opportunity of saving thousands of pounds. Richard Bell, for instance, was due to complete the sale of his home in Windsor on Friday after it had been on the market for several months. His buyer, however, suspended the deal at the last moment, hoping that stamp duty would be lifted.
"Their crumb of comfort has backfired," Mr Bell told BBC News. "It has stopped the sale in its tracks. They really haven't thought about the implications." Similarly, Chris O'Brien, who is about to buy a house in Swansea, says he will not now complete his purchase until he learns whether or not he can save £8,000 in stamp duty. "I don't want to sign one day only to find that stamp duty has been abolished the next. The chancellor needs to make a swift decision," he said.
By the end of last week, the British treasury felt obliged to issue a statement intended to dampen the speculation, which it described as "simply wrong". A spokesman said: "The government has made clear that there are a number of options we will need to consider to help businesses and people get through what is undoubtedly a difficult time." John McFall, the chairman of the House of Commons's treasury select committee, said Mr Darling "should have been more specific" when he had been interviewed on radio.
Estate agents were more critical, saying the uncertainty could result in the complete stall of an already dreadful market until a government decision is announced, perhaps as late as October. Peter Bolton King, the chief executive of the National Association of Estate Agents, backs a suspension of stamp duty, but complains that the treasury's message remains unclear. "If the government is going to come up with something, then we need to know about it now," he said.
Any help to boost the market, however, will come too late for the households living in 18,900 homes that the Council of Mortgage Lenders reported had been repossessed in the first six months of this year. The economic slowdown has left people unable to meet their bills while recent sharp falls in property prices threaten to leave some homeowners in a position of negative equity, where they owe more on their house than it is actually worth.
Not only have repossessions gone up, but the number of people behind in their mortgage payments has also shot up - to 155,600 in the first half of this year from 120,800 in the first half of 2007. The council said it was people with poor or non-existent credit histories who had been the hardest hit. "In general terms, while arrears and possessions rates have risen across the industry, the impact of the credit crunch has hit the adverse credit sector harder than most of the mainstream market, which continues to perform well," it said.
Arguably, the housing market in Britain needed to cool down after years of double-digit price rises had left even very humble properties out of the reach of many first-time buyers. However, the credit crunch has left tens of thousands of people unable to get mortgages at affordable rates. "The lack of mortgage finance has brought the housing market to a virtual standstill with first-time buyers rapidly becoming an endangered species," said Ian Perry, a spokesman for the institute of chartered surveyors.
"There are signs that sales activity might pick up a little as sellers start to re-evaluate unrealistic asking prices." The problem for Mr Brown and his ministers is that the majority of homeowners - rightly or wrongly - blame them for either the dip in the value of their properties or for growing fears over negative equity. To compound matters, first-time buyers inevitably direct their ire at the government for the difficulty in obtaining a mortgage.
Philip Hammond, who monitors treasury activity for the opposition Conservatives, was quick to jump on the bandwagon, saying the rise in repossessions was the result of the government's "economic incompetence". He said: "Faced with stagnant earnings, rocketing living costs and soaring mortgage bills, the weight of debt is taking its toll on thousands of hard-working families who stretched themselves to the limit to get on the property ladder and are now finding they can no longer make ends meet."
The charge may well stick, which is just what Mr Brown does not need at a time when his and his party's standings in the opinion polls are at an all-time low. @Email:dsapsted@thenational.ae