House prices have fallen in 2008 between 12.8% and 16.8% depending on which statistics you look at.  There have been regional variations, but if we needed one headline number we could use 15%.  This is a good step in the right direction, but with the average house price at £162k it is still too high (can we define this?  “It still stands at 5/6? times the average salary”).  Factor in regional variations and there are still places where it is difficult to buy a reasonable place for under £200k.

The world economy is going into recession and the UK economy is going with it.  With bad news in all forms of media every (space) day, companies are postponing investments, and individuals are postponing major purchases.  A recession is coming regardless of what the government do about it – they just cannot afford to be seen to do nothing.  This is why we have seen the Bank of England base rate fall from 5.5% in January to 2% in December 2008.  Unfortunately, the law of unintended consequences has been busy.

The BoE base rate fall has fed through into mortgage rates and deposit rates.  Those who bought property during the bubble years are benefiting from lower payments – if they can keep on finding new deals to latch onto.  Low rates do not encourage depositors to keep money in the bank, though.  This limits the funds that the banks can lend – thus low interest rates have not helped banks to write up new mortgages.

So we end 2008 with lower property prices, but still insufficient funds at banks to permit a reasonable mortgage market to exist.  We cannot predict the future, but the indications are that the present direction will continue for a while.  House prices will continue to fall, until banks get more money to lend.

What the Government should do next

We still need more new houses – the government needs to commission builders to build.  Priced Out will continue to campaign the Government to keep to their target of building 3 million new homes by 2020, which already looks set to be abandoned. Call them social housing for now, and sell them off later, maybe.  The underlying demand for homes has not decreased.

Although the reckless lending days are over for now, the government still needs to put regulations in place to prevent their return.  Given the shares in banks that the government own, surely now is the ideal time for introducing these obvious rules.  We need “proof of income” and “limited salary multiple” rules now.

2008 saw the publication of XXXX's review of the Private Rented Sector. Priced Out continues to campaign for increaesed and improved tenants' rights. We believe that this is key to facilitating affordable housing. Not only would this make rented accomodation more secure, it would deter the worst kind of landlords from buying short-term investments, such as 'buy-to-leave'.

Low interest rates will not allow the UK economy to avoid a recession.  We need sensible interest rates so that depositors and borrowers both have a fair deal.  I suggest a BoE base rate of 5% with Northern Rock acting as a deposit-taker and mortgage-lender of last resort.  Northern Rock could lend at 7% and take deposits at 3%. This would force everyone else on the High Street to lend at less than 7% and to beat 3% for deposits. The banks need to take deposits and lend money if they are to survive and prosper.

For PricedOut this year has been a roller-coaster ride.  The housing market has been at “force majeure” status all year.  With that in mind, we wish you a safe and happy 2009.