Confidence among potential buyers and lenders, is still painfully absent. This lack of confidence is the main reason for the difficulties facing the housing market.
Without confidence over the future movement of house prices or even employment prospects, transactions grind to a halt as buyers become more reluctant to commit themselves to such a significant purchase.
Lenders also lack confidence to lend to each other, worried about whether they will get that money back.
As a result, the cost of borrowing in the money markets remains high, although it is slowly edging downward and there is at least some stability here.
Potential buyers need reassurance that the worst of the house price falls are behind us and that we are at the bottom of the dip. Nobody wants to pay more than necessary.
But with every index pointing to further falls during the rest of 2008 and 2009, there remains a huge deterrent to buying. Why would you unless you have to? The majority of buyers are sitting tight until they believe prices have no further to fall.
There is some positive news on mortgage rates though. The bigger lenders – Halifax, Abbey, Nationwide and Lloyds TSB – have been reducing their fixed and tracker rates. This is set to continue as swap rates carry on falling but criteria are not softening, which is where first-time buyers are particularly affected.
Lenders are still offering preferential rates to those with at least a 25 per cent deposit, a situation unlikely to change soon. Some lenders now offer the best rates on 60 per cent LTV or even 50 per cent. This excludes the vast majority of first-time buyers who cannot raise deposits of this size even with significant assistance from their parents who could be under the cosh with their own mortgages anyway.
The Government’s new shared-equity schemes – MyChoiceHomeBuy and Ownhome – continue to be important, particularly as they have been extended to all first-time buyers with a household income of £60,000 or less. With the equity loan effectively acting as a 25 per cent deposit, buyers can get their pick of mortgages at the best rates. Shared equity is the only way that buyers are going to effectively achieve a 100 per cent loan as lenders are unlikely to return to such generous LTVs for at a while yet – if at all.
Although critics argue that with prices set to fall further, it is reckless to encourage borrowing at this level, it gives buyers a chance they might not otherwise have had. As long as they negotiate hard on the price and do not overstretch themselves, this could be an excellent opportunity to get into the market.
The one blot on the horizon is that demand is so strong that housing associations have run out of funding. The Government needs to make more money available if it is going to fulfil its promise of helping first-time buyers.
Confidence remains depleted and is likely to be so for a while but once all the bad news is out of the way and the market has readjusted, that elusive confidence should return. This will take a while but the dream of homeownership for first-time buyers should be more achievable, which is good news in the long run.
Mark Harris is managing director of Savills Private Finance