British Real Estate Market Seems to Be Thawing a Bit By JULIA WERDIGIER 08-05-2009

British Real Estate Market Seems to Be Thawing a Bit By JULIA WERDIGIER
New York Times
August 5, 2009

LONDON — Eager to buy a larger house a year after the birth of their daughter, Jo and James Howe braced themselves for months of stress and disappointment when they put their two-bedroom cottage near London up for sale earlier this year.

But the couple sold at their asking price within weeks. “The market was a very different place to what we thought it would be,” Mrs. Howe, a director at a media and marketing agency, said. “It was a positive surprise.”

There are some encouraging signs coming from the feeble British housing market, where prices are down on average 15 percent from their 2007 peak.

In July, residential property prices increased for a third consecutive month after mortgage approvals hit their highest level in 14 months in June. New buyer inquiries also rose — many of them wealthy non-Britons looking to snap up bargains.

In a further indication of an incipient recovery, foreign lenders like the Bank of China have also started to expand their mortgage offerings in Britain, while local banks are limiting their lending to repair their balance sheets, either voluntarily or under government pressure.

“It’s a great time to lend if you can and they’ve clearly got money to lend,” said Mark Harris, a mortgage broker at Savills, the real estate company based in London.

House prices were still 6.2 percent lower in July than a year ago, but that is less than the 9.3 percent year-over-year decline a month earlier, according to a survey by the Nationwide Building Society, a bank. Prices have risen 1.3 percent since the beginning of the year, the survey found.

Analysts said it was too early to predict a housing recovery in Britain, especially because unemployment was not expected to peak until the end of this year. But the recent housing data suggests that prices could at least be stabilizing, and some economists see it as a sign that the market has reached a bottom.

“There is now a reasonable chance that prices could end the year slightly higher,” Martin Gahbauer, chief economist for Nationwide, said. “Only a few months ago, such an outcome would have appeared unthinkable.”

The increase in housing prices, helped by purchases in prime areas of London like Chelsea and Knightsbridge, is mainly a result of a shortage of properties. Liam Bailey, head of residential research in London at the real estate agency Knight Frank, said the number of properties for sale fell by half during the last 12 months because homeowners were waiting for a recovery.

Some real estate agents also registered more interest from non-British buyers seeking an attractive investment. They were lured by a combination of lower prices, a beneficial exchange rate and low interest rates.

A similar situation in the early 1990s started a slow housing market recovery in Britain that stretched over several years. Peter Spencer, author of the Item Club forecast on the British economy, said the housing market played a larger role in the country’s economic ups and downs than in most other parts of Europe or even in the United States.

“A relatively high proportion of people in Britain own houses, and unlike Americans, we mainly have variable rate mortgages, which means that income flows vary and there’s a more direct link to consumption levels,” Mr. Spencer said.

While the latest numbers were “quite encouraging,” Mr. Spencer cautioned, “The question is how sustainable they are if they’re mainly based on cash buyers, some of them from overseas.”

Andrew Weir, central London area director for Foxtons, a large real estate agency, estimated that about 65 percent of his current customers were not British.

Mr. Weir said he was being contacted more often by wealthy Italians, Greeks and Spaniards — one of whom did not speak English but walked into his office with a translator and a suitcase of cash. “They mainly buy for investment reasons,” Mr. Weir said.

Bradley Persell, a partner at Persell Ewart, a mortgage broker and wealth manager in London whose clients include Goldman Sachs, Morgan Stanley and Clifford Chance, said he had received roughly seven times as many inquiries about property financing from his clients over the last three months compared with the fourth quarter of last year.

“As people become more confident with compensation levels and the market, they say, ‘Let’s look again,’ ” he said.

A small number of overseas banks are also looking for opportunities. “Given that our mortgage products and criteria are very competitive in the market now, it is a good opportunity for us to grow our loan book,” said Lan Xiong, a spokeswoman for the Bank of China.

The bank catered exclusively to the Chinese community in Britain but now plans to broaden its customer base by offering mortgage rates that undercut British competitors. Bank Leumi of Israel and Handelsbanken of Sweden also offer mortgages below the rates of some British banks, focusing on wealthier clients. All the loans are in offered in pounds.

If successful, Bank of China plans to use its mortgage business to build a wider retail banking operation in Britain and the rest of Europe, it said.

But for the average person, especially first-time buyers, getting a mortgage remains a major obstacle. Most banks ask for a 25 percent deposit, a hefty sum considering that the average house price in Britain is £158,871, or about $267,000, and the average annual salary is £31,300, or about $53,000.

The hope is that once the top mortgage market becomes crowded, some banks will start to take on more risk and lower the required deposit, said Mr. Harris, the broker at Savills.

For the Howe family, finding a mortgage to buy their new house was a challenge. “It seemed to be a much longer process, much more thorough,” Mrs. Howe said. “And we had to put down quite a decent amount of money.”