Rise and fall

Posted by: Jules Birch

05/08/2009

The Halifax house price index published this morning shows a 1.1% increase in prices in July. More significantly, the underlying trend (comparing the last three months with the previous three) is up for the first time since October 2007 and the start of the credit crunch.

‘Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates,’ says housing economist Martin Ellis. ‘Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months.’

Good news, you might think, for existing homeowners and for the biggest lender to them and not a bad start to the second half of 2009.

But Lloyds Banking Group – the Halifax’s parent company since Lloyds TSB took over HBOS – takes a very different view in its results also published this morning.

The bank made a loss of £4bn in the first half of 2009 after taking an impairment charge of £13.4bn of bad loans – most of them by HBOS.

 ‘Compared to the first half of 2009, we expect to see a moderate increase in the Retail impairment charge in the second half of the year,’ it says. ‘The increase in the second half of 2009 largely reflects the expected impact of rising unemployment levels and further house price falls.’

What Lloyds thinks matters more to housing than any other bank. In addition to being the largest mortgage lender in general, it is also by far the major lender in the shared ownership market. It is the largest lender to housing associations. And, thanks to HBOS, it has stakes in five of the top 20 housebuilders.

If it really believes prices are rising it might become less restrictive in its lending.  But the Halifax index only reflects the prices of the low number of homes that have actually sold – and serious questions remain about how long the upward trend can continue thanks to rising unemployment.

The bank’s average loan to value for new mortgages and further advances has fallen from 63% to 58% in the last six months. That caution is hardly surprising when you consider that 20% of its mortgages are in negative equity – up from 16% six months ago and just 0.1% in 2007.