With the latest stats on mortgage approvals, transactions and house prices all showing improvement, everything in the garden looks much rosier than it seemed last winter. But could yellow weeds be about to sprout up around all those green shoots?
The Japanese knotweed in the plot is still rising unemployment. That’s the main reason for the Council of Mortgage Lenders predicted an accelerating rate of repossessions yesterday, even though the headline number will not be as bad as it feared - and perhaps why credit conditions do not seem to be improving.
But negative equity could prove to be equally herbicide-resistant, according to a survey by ratings agency Fitch that says 15%of borrowers with prime residential mortgage-backed securities (RMBS) already have loans worth more than their home and that the total could rise to 34 per cent by the end of the downturn.
And things are not looking to good in the private rented garden either. The Royal Institution of Chartered Surveyors shows that rents are falling at the fastest rate since it started its survey 10 years ago and are now falling faster than house prices.
The Fitch survey is important because it is only talking about securitised prime loans - negative equity is probably even higher in the sub-prime sector. They will also be loans taken out in the last few years, arranged through securitisation vehicles like Northern Rock’s Granite.
The implications for lenders, and therefore for lending levels, are that borrowers who are ‘underwater’ are less able to get out of trouble and more likely to default. There is also a huge problem of people who have positive equity but not enough to qualify for good remortgage rates.
Fitch expects house prices to fall more too - by up to 35% from peak to trough as opposed to the current 19% despite recent rises in the Halifax and Nationwide indices. It argues that those increases were driven by lack of supply and could in themselves be the catalyst for further declines as homeowners who have been waiting for prices to stabilise decide to sell, so increasing supply.
Many of those non-sellers are currently reluctant landlords and they will not find the latest RICS survey very pleasant reading. Some 55% more surveyors reported a fall in rents than a rise. The percentage balance expecting a further fall fell back from the record high recorded in January but is still at -25%. And gross yields - the return on rents and capital values - are falling for the first time since April 2007, indicating that rents are falling faster than house prices.
The survey does not yet show evidence of a significant increase in landlords planning to sell but that overhang, combined with negative equity and unemployment, could be the weeds in the garden for years to come.
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