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Things can only get better

The market is desperate for some good news and while last week’s announcement of the Bank of England’s £50bn rescue package could help reinvigorate the market in the near future, the pain is really hitting the house building market.

Persimmon yesterday revealed it has postponed the commencement of scheduled new sites until the mortgage market improves.

The housebuilder has seen a slump of 24 per cent in total sales revenue for the first quarter of 2008, with volumes falling 18 per cent.

In its annual general meeting statement, Persimmon says that while visitor levels to its sites were encouraging in March, over the last three weeks the unprecedented tightening in the mortgage market has caused further deterioration of the housing market leading to lower sales volumes and increased cancellation rates.

Persimmon’s statement says it welcomes the recent Government actions to increase liquidity but notes that for this action to be effective it needs to result in an increase in the availability of credit for house purchasers, particularly first time buyers.

But we already know this is not the Bank of England governor Mervyn King’s aim with its rescue package. King was adamant when announcing the proposals that the objective of the plan was neither to persuade banks to start lending again nor to stand in the way of a housing market correction.

He also warned the scheme was not designed to send the mortgage market back to the “rather wild” lending before the liquidity squeeze hit the market last summer. This only seems to suggest that first time buyers look set to continue to struggle for the foreseeable future, with many in the market suggesting high loan to values are unlikely to return for several years.

Persimmon’s announcement yesterday makes it even more certain that the Government will fail in its housing targets.

Assetz chief executive Stuart Law says: “This announcement has come as no surprise and only supports what I have been saying since last September, developers are not starting work on new sites in the current climate.”

Law warns that Persimmon will not be the first and last to announce a freeze on new starts, rather the first in a series of similar admissions across the housebuilding industry.

He says the level of housebuilding reductions is still to become clear but points out that a 40 per cent reduction to 96,000 new housing starts for both 2008 and 2009 is feasible based upon present evidence.

To add further to the downbeat note, figures published earlier this week by the British Bankers’ Association showed that the number of mortgage approvals during March were down 46 per cent from a year ago.

While the news at the moment continues to be full of doom and gloom, the message the mortgage market needs to hold on to is – as the band D:Ream said (or rather, Howard Jones, depending on your generation) – “Things can only get better”.

If you would like to comment on this piece or anything else then please email me at tanya.powley@centaur.co.uk.

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