House sales slump 53% across UK

There is no sign of a let up in the property slump

The number of property sales in the UK has fallen by 53% in the past year, according to the latest figures from HM Revenue & Customs (HMRC).

In September, 59,000 homes were sold, down from 126,000 sales in the same month last year.

That was also a 62% fall from the recent peak in sales, of 154,000, seen in December 2006.

This year, the credit crunch has driven the housing market into its sharpest slowdown for many years.

Nose-dive

Despite a recent cut in interest rates, attempts by the government to refloat the banking system, and a cut in the burden of stamp duty, there is no sign yet of the property market coming out of its steep nose-dive.

Lenders such as the Halifax and Nationwide have reported that prices are still falling fast and are down by about 12% on their levels of a year ago.

A recent survey by the Royal Institution of Chartered Surveyors found that estate agents were struggling to sell even one property per week each on average.

In addition, the best leading indicator of future activity - the number of new mortgages approved for house purchase but not yet lent - is down by 70% on a year ago, suggesting that sales and prices have further to fall.

On Monday, mortgage lenders warned that lending this year would turn out to be just 37% of last year's level and that prices would probably continue falling in the next few months.

Howard Archer of Global Insight described the HMRC figures as "dismal".

"Faster rising unemployment, heightened concerns over the economic outlook and widespread expectations that house prices will continue to fall markedly seem well set to depress housing market activity and prices for some considerable time to come," he said.

Shortage of funds

The key factor in the sales slump has been the lack of funds in the past year available to banks and building societies to lend to borrowers, especially first-time buyers.

With house prices falling, lenders have been demanding that borrowers put down deposits that are much larger than normal, to protect themselves if someone becomes unemployed and the home is subsequently repossessed and sold at auction.

At the start of the year, mortgages worth 100% or even more of a property's value disappeared. Now even the traditional 95% mortgage is in danger of disappearing.

Many lenders now ask borrowers to put down at least 10% of the purchase price of a new home. The most favourable deals, at the lowest interest rates, are generally available only to those who can put down 25%, or sometimes even 40%, of their purchase price.

"There are some signals that housing market activity could be close to hitting a floor but there is a danger that a sharp rise in unemployment could precipitate a further round of fear on the part of buyers," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).