Negative equity has almost vanished in house price boom
04-29-2014
Some buyers in north of England still suffering as range of indicators suggest economic recovery is broadening
Katie Allen and Juliette Garside
www.theGuardian.co.uk
Of the 364,000 homes bought by first-time buyers in 2007, only 22,000 of them are still in the red, according to estate agency Countrywide. Photograph: Rui Vieira/PA
The negative equity trap that snared borrowers who bought their first home just before the credit crunch has all but disappeared, according to a report published on Monday which adds to increasing evidence that growth in the economy is gaining pace.
The findings are published as official figures are expected to show Britain's economic growth outstripped the United States and Europe in the first three months of this year.
Before the release of the first official GDP data for 2014 on Tuesday, a range of indicators from house prices to advertising spend and manufacturing output suggest the economy has gathered steam this year, with the recovery becoming more broad-based as solid manufacturing output balances rising consumer spending.
According to data from the estate agency Countrywide, the number of first-time buyers whose properties purchased in 2007 are now worth less than the mortgage raised to acquire them has fallen from a high of 60% in the winter of 2008 to just 6%. Rising house prices brought the proportion down from 15% a year ago. The report says a total of 364,000 homes were bought by first-time buyers in 2007, and only 22,000 of them, mostly in the north of England, are still in the red.
"Despite the largest fall in house prices for 25 years, across most of the country the number of first-time buyers who bought at the peak of the market and still find themselves in negative equity is low, which is good news," said Nigel Stockton, financial services director at Countrywide.
"However, in parts of northern England the story is different. While the number of homeowners in negative equity is falling, it is doing so at a much slower pace than compared to the south of the country."
While fewer than 1% of buyers are trapped in London, the south-east, south-west and east of England, and figures are low in Wales, Scotland and the Midlands, the recovery has not yet reached the north. Of the 17,300 people in the north-east of England who bought their first property in 2007, 53% are still under water. In Yorkshire and Humber, the proportion is 29%, of 30,000 buyers.
After a strong start to the year, house prices rose again in April, by 0.6% nationally, according to the latest Hometrack survey, with properties snapped up within just six weeks of going on sale, down from an average of eight weeks in February.
The first official estimate of GDP for the January to March quarter is expected to show the economy grew 0.9%, according to the consensus forecast in a Reuters poll of economists. That would mark an acceleration from 0.7% in the final quarter of 2013. There was a range of views in the poll of City analysts, with the highest forecast at 1.1% growth and the lowest 0.5%.
A pick-up would be a further boost for George Osborne on top of predictions from the International Monetary Fund this month that the UK will be the best performing of the world's largest economies this year.
Conceding it had been overly pessimistic last spring when it warned the chancellor to ease austerity measures or jeopardise growth, the IMF said GDP growth would soar to 2.9% this year before returning to its long-term trend of 2.5% in 2015.
David Tinsley, UK economist at BNP Paribas, expects confirmation of Britain's outperformance in Tuesday's GDP numbers. "The year-on-year GDP growth rate will rise above 3.0% and the UK's first-quarter performance will easily outstrip that of the US or eurozone," he said.
Business optimism is the highest for at least a decade, according to a CBI report on Mondaywhich covers the retail, services and manufacturing sectors. The data suggests economic growth continued to gather pace in April. Output rose from an eight-month low in March and remained "well above average".
"These latest growth figures, and the strong expectations for the next quarter, provide further encouraging signs of increasing vigour and confidence across the UK economy," said Katja Hall, CBI chief policy director.
"While consumer spending accounted for the lion's share of GDP growth last year, there are firm indications of growth becoming more broad-based. It's good to see that business investment has consistently contributed to quarterly growth since 2013."
The report suggests growth strengthened across the retail and service sectors in April, while manufacturing output growth "remained solid".
Of 675 firms surveyed for the CBI's growth indicator, a balance of +25% said output was higher, compared with +19% in March. Firms are optimistic that growth will pick up again over the next quarter, with the expectations balance at +42%, the highest since records began in 2003.
Advertising spending, another economic buoyancy test, is also on the rise.
The Advertising Association predicted annual spend in the UK would reach £20bn by next year, with traditional media such as newspapers and television beginning to recover from the combined impact of the recession and the rise of the internet.
There have been concerns, however, that the recovery remains consumer-led, with signs that households have driven down their savings to keep spending. A surprise rise in retail sales for March revealed last week, underlined Britain's continued reliance on domestic consumer spending, despite a government push to rebalance the economy towards manufacturing and exports.
But Howard Archer, economist at IHS Global Insight, expects the latest official data to show all sectors of the economy contributed to growth in the first quarter, albeit led by the dominant services sector.
"Even construction output is likely to have clearly expanded overall despite being handicapped by February's floods and bad weather," he said.
"Consequently, the economy looks set to finally surpass in the second quarter its previous peak level which occurred in the first quarter of 2008. It's been a long time coming but hopefully the economy can now sustain decent growth for an extended period."
A separate report on Monday points to improving prospects for the construction sector, which was hit hard by the downturn and still remains below its pre-recession strength. Sales of materials for the industry rose for the fourth consecutive quarter in the first three months of this year, according to a survey from the Construction Products Association. More than three-quarters of product manufacturers, on balance, reported sales rising, compared with the previous quarter.
"This growth was not just driven by house building. Private sector offices and new infrastructure are also rising, adding to the recovery in the housing sector," said Noble Francis, economics director at the trade group.
"Looking forward, product manufacturers anticipate the construction recovery to continue in the second quarter and over the next year, again due to growth in housing, commercial and infrastructure."