‘Bank underestimating threat to economy from housing downturn – this cannot be treated like previous downturns’
A half percent cut in interest rate is now imperative or rapidly deteriorating conditions in the housing market risk causing a serious economic slowdown, a situation unique in living memory that needs a fresh approach - HBF warned today.
In the three previous post-war housing slumps, sharply higher interest rates and economic recession brought the housing market to a halt. Today, a severe housing market slowdown, driven primarily by a halving in mortgage availability, risks driving the economy into a deeper slowdown than the Bank of England anticipates.
A cut in interest rates would, as the Bank acknowledged in its latest Inflation Report, ‘increase the funds available for lending’ and help alleviate the mortgage crisis. This is a vital first step in arresting the falling housing market.
John Stewart, director, economic affairs at HBF said today. “Previous economic crises have led to housing market slumps, but this time the cart is leading the horse, with the speed and depth of the downturn threatening a serious wider economic crisis. We just cannot rely on lessons learnt and solutions based on past downturns as this is a completely new situation in which we find ourselves.”
The speed of today’s slowdown is unprecedented and has shocked even experienced members of the home building industry. Quarterly mortgage approvals for house purchase have fallen by 43% since their peak at the end of 2006. By this stage in the 1988-92 housing slump, approvals had fallen by only 32%.
All the indicators remain very negative, and the industry, and industries reliant on house building, are now seeing escalating job losses, with no end in sight to the situation.
The impact on the economy of not acting to reverse the housing market downturn, in terms of job losses and the associated deterioration in consumer confidence and spending is clear.
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Notes to Editors:
1. The Home Builders Federation (HBF) is the principal representative body for private sector home builders and voice of the home building industry in England and Wales. The HBF’s 300 member firms account for some 80% of all new homes built in England and Wales in any one year, and include companies of all sizes, ranging from multi-national, household names through regionally based businesses to small local companies: www.hbf.co.uk
2. Net mortgage lending is expected to drop from £108Bn in 2007 to £55Bn in 2008 – Council of Mortgage Lenders forecast.
3. “...the impact of Bank Rate reductions on banks’ balance sheets and access to funds should increase the volume of funds available for lending”. Bank of England Inflation Report, May 2008.
4. It is estimated that whilst around 300,000 people are employed in building homes many more are employed either directly or indirectly in servicing the housing industry. From white collar workers such as solicitors, estate agents, mortgage brokers, insurance clerks to removals men, utility connection companies, brick, concrete and other material manufacturers, white goods and electrical providers, carpet/ kitchen/curtain manufacturers - there are a great many businesses and jobs reliant on house building and the residential property market.
5. Government targets announced last year for new homes are for the industry to be building 240,000 a year by 2016; and a total of 3M by 2020
6. Whilst HBF welcomed the Bank of England Special Liquidity Scheme, one and three month LIBOR remain well above Bank Rate and mortgage availability remains a serious brake on housing market activity.
For media enquiries, or to arrange an interview, please contact
Steve Turner
020 7960 1606
07919 307 760
steve.turner@hbf.co.uk