BOE holds rates at 0.5% - Property Prices Rising or Falling? – 125% is back!?

House prices continue to decline according to the Halifax House Price Index, who reported a figure of 0.5% in June from May 2009. Whilst in contrast to Nationwide’s Index which reported an increase of 0.9% for the same period, the figures are however expected to be slightly erratic due to the low volume of overall lending compared to historic figures.

The CML forecast on Monday that the expected repossessions for 2009 would total only 65,000, down from the originally forecast 75,000, showing perhaps that government measures to provide households in financial trouble may be working? The FSA reported that the number of mortgages in arrears reduced by 12 per cent to just under 60,000.

It was not unexpected that the Bank of England’s Monetary Policy Committee voted to maintain a rate of 0.5% on commercial bank reserves or to continue with its programme of assets purchases that will total £125 billion financed by the issuance of central bank reserves.

Whilst the FSA has stated it will address the introduction of maximum loan to value or maximum borrowing based on income on all mortgages in a discussion paper, the government must at the same time compel banks to increase or at least maintain the availability of loans to businesses and households. The FSA’s paper may go further to suggest a ban on all self certified mortgages, requiring income proof for all home loans. As such a substantial segment of the market it is hard to see how this type of measure will ease the current borrowing crisis.

Propping up the property market as always is the availability of bridging loans. Many Lenders and Private Financers are returning to funding the market due to the high returns bridging finance can offer, which many say underpin the recovery of the property market providing the niche finance that is otherwise not available in the market place.

Whilst discussions of capped borrowing levels and tougher criteria are taking place, Nationwide have rather quietly introduced a product that allows existing borrowers to take a loan of 125% Loan to Value. The debate of irresponsible lending versus keeping the market afloat is set to continue for a long time to come.