Confidence in the UK real-estate sector showed tentative signs of recovery in July, but the lack of mortgage liquidity is likely to cause further price declines as banks continue to protect their balance sheets, the Royal Institute of Chartered Surveyors said Tuesday.
The number of surveyors reporting falling rather than rising house prices improved for the third consecutive month in July to 83.9 percent, but price rises were still elusive for the vast majority of surveyors, RICS reported.
The continued weakness in the British housing market was not being driven by an excess supply, RICS pointed out, as the number of repossessions is still low and broadly comparable to that of the late 1990s.
“The lack of mortgage finance has brought the housing market to a virtual standstill with first-time buyers rapidly becoming an endangered species," RICS spokesperson Ian Perry said in a statement.
With first-time buyers unable to secure financing to purchase the country's cheapest housing, existing home owners looking to upgrade their property are unable to fund a move by selling.
This in turn stops new properties coming onto the market as the property chain has been starved of new funding.
Widespread expectations of further price declines have also kept the market from finding its feet as investors hoping to pick up a bargain wait for clearer signals of price rises to come.
The number of completed sales per surveyor over the last three months continued to fall in July, which RICS cites as an indication of further price declines in the coming months.
The growing willingness of sellers to reduce their asking prices and undercut rivals is also likely to cause price declines in coming months. However, the added liquidity effect of reducing asking prices could ultimately help prices recover, Miles Shipside, commercial director of Rightmove, said in a statement.
Meanwhile, the Bank of England has been unwilling to bail out the real-estate sector by slashing interest rates because of the UK's above-target inflation, but it remains unclear whether cuts in the price of government borrowing would be passed on by the mortgage lenders.
There has also been mounting speculation over whether the UK government could try and boost the market by allowing certain buyers to defer the payment of stamp duty. RICS points out that confusion over whether the strategy will be taken up or not risks damaging any return of confidence.
(Watch Oliver Gilmartin from RICS talk about the data above).