CBRE: Lack of finance causes residential market to falter but build-to-let offers hope (UK)

New research from CB Richard Ellis Residential shows that lack of mortgage supply created by the credit crunch is the thorn in the side of the ailing housing market. Until recently the shortage of housing constrained the market and pushed up house prices. In contrast, we now have a situation where the shortage of mortgages is constraining the market and pushing down house prices.

In its Q1 report CBRE Residential forecasts UK house prices will fall 4% in 2008 with the market remaining "thin and vulnerable". If, however, the credit conditions worsen and feed through to the wider economy, house prices could fall by as much as 10%.

Commenting on the lack of available finance, Jennet Siebrits Head of Residential Research said "The credit crunch is feeding directly through to the residential market in the form of tighter lending criteria and higher mortgage rates. The liquidity squeeze means the housing market headache has the potential to turn into a full blown migraine."

The consequences are already being felt; mortgage approvals are down 39% from last year, the second lowest figure in 13 years. Only 243,000 buyers registered with estate agents in February, an annual fall of around 30%, while the average number of properties on estates agents' books fell from 83 in January to 73 in February.

Developers are also feeling the effects with a 42% year on year fall in net reservations being reported. Many are offering price cuts and incentives to encourage sales. There is also evidence of developers mothballing schemes, which means Gordon Brown's challenging targets of three million new homes by 2020 will be almost impossible to achieve.

One possible option for developers to mitigate lack of demand and to help achieve Gordon's housing targets is "build-to-let". The concept is well tested and popular with investors in the US and sees developers earmark a discrete block of 100 purpose built flats for the private rental sector. Blocks can either be kept as an investment by the developer or sold whole to another investor.

Siebrits explains 'Faced with weaker conditions developers need to think strategically; build to let may be a viable option and could revolutionise the rental market'

Source: CBRE

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