British Housing Market Faces a `Tough Year,' Countrywide Says

U.K. home prices may fall by as much as 5 percent next year as the government raises taxes and cuts jobs to reduce the record budget deficit, the country’s largest property broker said.

“It will be another tough year,” Grenville Turner, chief executive officer of Countrywide Plc, said in an interview. The company, based in the town of Milton Keynes in southeast England, handles one in 10 British home sales.

Home prices will drop the most in cities with the highest proportions of state employees, Turner said. In northeast England, which includes Middlesbrough and Newcastle, average values declined 0.9 percent in October from a year earlier, while in London they rose 7.6 percent, according to the Land Registry. The overall increase of 3.4 percent was the smallest since December 2009.

Prices are now about 10 percent lower than the market’s peak in 2007. In the second half of this year, home sales have slowed as the government cutbacks and borrowing restrictions imposed by debt-laden banks deterred buyers. Mortgage lending in October was the lowest for that month in the past decade, the Council of Mortgage Lenders said Nov. 18.

This year, property transactions will fall short of the 610,000 registered in 2009, Turner said in the interview at the Hamptons International office opposite the U.S. embassy in London’s Mayfair district. Hamptons is one of 46 brands owned by Countrywide, which is also the U.K.’s largest mortgage broker.

Lowered Expectations

With fewer people able or willing to move, “we are having to adjust expectations on prices,” said Turner, 53. “People wanting to sell have to recognize that they have to change prices.”

Interest rates probably won’t change much next year and banks won’t increase their lending significantly, he said. Mortgage approvals fell to an eight-month low in October, the Bank of England said Nov. 29.

Mortgages have become unattractive for homebuyers with only a small amount of equity, Turner said. For a borrower with a 10 percent down payment, the initial interest rate for one of the most popular types of loan is about 7 percent, while someone with 40 percent of equity would pay 2.75 percent, he said. Borrowing costs for this mortgage are fixed for two years before reverting to a variable rate.

‘Sensible Lending’

“Ten to 15 percent of the mortgage market has gone forever or at least for the foreseeable future,” he said. “Over the next 12 months, there will be a gradual increase in competition. We will see sensible lending, but not back to the heady days.”

Countrywide’s residential rental brokerage arm registered 61,000 new prospective tenants in the third quarter, 19 percent more than the prior three months. The company estimates that 4.5 people vied for each rental property on its books in October.

Countrywide, which runs 1,300 home-sales brokerages with brands including Bairstow Eves, Gascoigne-Pees and John D Wood & Co., has opened 60 leasing branches this year and may come close to doubling that figure in 2011, Turner said.

About 15 percent of the mortgages sold by Countrywide, which is unrelated to the U.S. company of the same name that’s owned by Bank of America Corp., are for investors purchasing rental properties, known in the U.K. as “buy to let.”

Countrywide Plc was acquired for 924 million pounds ($1.4 billion) by Apollo Global Management LLC in April 2007, five months before a decade-long surge in U.K. home prices peaked.

Major Shareholders

Last year, creditors exchanged some of their loans for a stake in the business, making Oaktree Capital Management LLC the largest shareholder with 36 percent and trimming Apollo’s share to 25 percent. Alchemy Partners LLP has 9 percent.

Turner, who joined Countrywide in August 2006, expects a steady recovery for Britain’s housing market starting in 2012 as the shortage of homes prevents a slump in prices and mortgage lending gradually recovers.

“I don’t see a dramatic move in pricing in the next two years,” he said. There is a “very good chance” that pent-up demand will cause home sales to rise to almost 2 million, or double the long-term average, in 2013 or 2014. Prices will probably gain about 5 percent in each of those years, he said.

“The U.K. hasn’t fallen out of love with property,” Turner said. “A lot of moves are on hold.”