Housebuilders Overpricing Ends in Tears with UK Banks Says Construction

The Construction today said that the housing crisis could get much worse. It has been no secret that housebuilders have been riding the wave of inflated house prices and now rumours are pervading the industry that banks are beginning to restrict the amount of lending against new build properties less than five years old.

Kenilworth Warwickshire, United Kingdom, June 26, 2008 --( The Construction revealed that in order to protect their lending and curb housebuilders inflating house price packages for buyers, banks are restricting mortgage lending on new build purchases. In order to get a good headline rate of new build transactions housebuilders have typically bundled legal fees, carpets, appliances and deposits into the offer price. To protect the sales value of a particular housing estate the transparency of the completed price has been masked by attractive bundles which has inflated the actual value of the house.

Cheltenham and Gloucester are leading the way and have already placed a notice on their website which states “for new-build properties (defined as any property that was first occupied less than 6 months ago) the most you'll be able to borrow is up to 80% of the property's value.” The Construction predicted that the mortgage restrictions could include properties up to the age of five years over coming months in order to push new build house prices down to reflect real values.

However the net effect of this could mean that if buyers are forced into purchasing older properties an already stagnating new build market could be completely destroyed. Already housebuilders have reduced their workforce and cut back on new build projects in order to regain financial stability but with a reducing buyers market this trend is likely to continue.

The Construction said that housebuilders and banks needed to work together, to establish a renewed confidence in each other’s products and to keep the new build housing market afloat. With the new agreement made between Barratt Homes and its lenders to avoid breaching its banking covenants, it would seem that steps were being taken to avoid the complete implosion of housebuilders fortunes.

Richard Simmons, Managing Director of The Construction Centre said “It is amazing that the lessons of the early Nineties were not learned and yet again, although for different reasons, the housing market is in dire straits. But this time it is the banks, the housebuilders and the buyers who are suffering. It is absolutely essential in this ultra sensitive market for new house prices to reflect categorically the bricks and mortar of the house alone to restore the confidence of the lenders. Reciprocally the lenders need to publish every clear guidelines that if certain value and lending criteria are met that the finance will be forthcoming.”

Roger Humber, strategic policy adviser to the House Builders Association said “The issue is not the lack of demand but an absolute lack of mortgages. Until the credit crunch is resolved… we’ve got to see a continued low level of house building.”

This is bleak news for housebuilders but in order to survive, a reduction in both workforce and projects will be essential. The Construction Centre said that until buyers can afford the mortgages on offer and the lending markets have regained confidence, housebuilders would need to prepare for a very difficult year or two ahead.

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Angela Gallacher
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