U.K. Housing Market May Not Recover Until 2012, Savills Says

May 1 (Bloomberg) -- The U.K. housing market may not recover until 2012, a year later than earlier projected, as unemployment rises and the financial crisis deters buyers, Savills Plc said.

Prices will probably drop about 11 percent this year, less than the 14.7 percent decline in 2008, as would-be homeowners struggle to secure mortgages, Savills said in a report today. Savills, the U.K.’s largest publicly traded property broker, in November projected a 2011 recovery for the market.

“Fear of redundancy and credit constraints are still major factors” that will hold back the recovery, said Yolande Barnes, head of residential research at the London-based company. “The residential market has seen the worst of the declines.”

House prices in the U.K. dropped for a 19th month in April, according to Hometrack Ltd., as the worst recession in at least three decades destroyed jobs. Values have fallen about 19 percent since the market’s peak in the third quarter of 2007 and will probably drop by a total of about 24 percent, Savills said.

The report signals more pain for the U.K. at a time when price declines are slowing in the U.S.

U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, the Federal Housing Finance Agency in Washington said on April 22. Prices probably will fall 5.1 percent this year to $188,500, less than the 9.3 percent plunge in 2008, according to the National Association of Realtors in Chicago.

Luxury Homes

London and the rest of southern England will recover first because these areas have a greater concentration of wealth, lower levels of household debt and fewer repossessions than other parts of the U.K., Savills said.
Luxury homes in the U.K. capital will return to “modest levels of positive annual growth as early as the end of next year,” said Lucian Cook, a research director at Savills. These properties will probably fall another 5 percent to 10 percent, he said.

London homes costing more than 1 million pounds increased in April from the prior month for the first time since March 2008, Knight Frank LLP said April 24. Prices fell 23 percent on an annualized basis, the property broker said.

In southwest London, there are 10 percent to 15 percent fewer luxury homes for sale than a year ago, said Lindsay Cuthill, who oversees eight Savills brokers in the Fulham, Wandsworth and Putney districts. Those neighborhoods are favored by bankers and the financial crisis has caused values there to slide 26 percent since September 2007, the largest decline for prime homes in the British capital.

Less Than Advertised

“Most sellers are having to accept offers below the guide price, which also has to be sufficiently attractive to get people to cross the threshold,” Cuthill said.

In March, Savills sold a house in Fulham with 2,777 square feet (258 square meters) of space for 1.75 million pounds. The property was put on the market late last year “at a 2007 price” of 2.4 million pounds, Cuthill said. If the same home were to go on the market now, the asking price would have to be 2.15 million pounds to achieve the same sale price, he said.

“Buyers have got to see on paper that a property’s at a discount to what it was in 2007,” he said.

Surveys of members of the Royal Institution of Chartered Surveyors show increased demand from prospective buyers in the U.K.. While mortgage-lending is still near the lowest level since the liberalization of the market in the 1980s, there are signs of a fragile recovery.

The proportion of sales by indebted owners, divorce or death has increased from 15 percent of the market to 35 percent. Most affected are properties worth less than 2 million pounds, which were favored by bonus-earners in London’s financial services industry.

The pound’s weakness has made U.K. homes even cheaper for foreign buyers. The currency lost 26 percent against the dollar in the past year and 23 percent against the euro.

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