Set in stones
With an audacious bail out plan approved by the US Senate things may be looking up, but the fate of our markets still lies with property values
Property prices will determine our fate, not politicians. The focus was on Capitol Hill on Friday, but it was all too much. Hopes hinged that changes and concessions would persuade Congress to pass the US government's economic rescue plan.
In the run up, Wall Street shares rose and fell as investors tried to second guess whether Congress opposition to the $700bn bail-out package would weaken.
Most were too distracted to respond to more important matters.
Figures on Thursday showed a four percent drop in US factory orders during August - the largest fall for two years. Benefit claims showed a rise of 1,000 jobseekers to 497,000 - the most since September 11, 2001.
The most worrying news remains the failing housing market - the major driver for the global recession.
What ever Congress had decided, the world's fractured credit markets are broke until property values bottom out and start to recover.
The Standard & Poor's/Case-Schiller housing index published on Tuesday showed prices in July down 16.3 percent from a year ago in 20 US cities, a record fall.
The slump is not exclusive to the US, as markets continue to suffer world-wide losses.
UK house prices fell by 12.4 percent in the last year, according to the latest figures from the Nationwide Building Society - the second largest mortgage lender.
The Nationwide's statistics show that the average price for a home is now £161,797, compared to a peak of £186,044 in October last year.
In its most recent figures in August, the UK's largest mortgage lender, Halifax, reported a fall of 11.9 percent year-on-year.
Bradford & Bingley’s demise on Monday may mean the bank is in safe hands at last.
But its nationalisation represents more than just a disaster for its shareholders. The potential impact on the already fragile property market is more devastating news for large and small investors.
On the day Prime Minister Gordon Brown reiterated his government’s commitment to stand behind the banks, while encouraging the U.S. Congress to do the same, several UK lenders pulled their buy-to-let mortgage offers, or re-priced them upwards.
Birmingham Midshires announced it was raising the cost of its buy-to-let mortgages within hours of the B&B nationalisation announcement. The Mortgage Works, which is owned by the Nationwide building society, pulled its specialist landlord deals.
These moves suggested industry was already anticipating the Government’s need to offload the B&B mortgage book.
The UK buy-to-let market accounts for 1.1m mortgages worth £132.5bn (10 percent of the UK total), many of which were sold through loans with B&B.
B&B's Mortgage Express is leading lender, followed by HBOS's Birmingham Midshires, Paragon, Bank of Ireland's Bristol & West, and Lloyd's TSB's Cheltenham & Gloucester.
What B&B demonstrated again beyond any doubt was the UK Government’s determination to stave off collapse of the entire financial system.
The US authorities, led by treasury secretary Henry Paulson, were desperate to do the same with the people’s $700bn.
But don’t lose sight of the bigger picture. The damage was done more than 18 months ago. Until house prices stop falling, we are almost entirely tied to fate.
