The return of the £100,000 London home

 

LONDON BRIEFING:HOUSE PRICES in the UK capital have hit the front pages once again, with the London Evening Standardyesterday splashing on the "Return of the £100,000 home".

Thousands of homes, mostly repossessions, are being sold for knockdown prices as the financial crisis tightens its grip. The Standardcites one auction last week where 18 lots changed hands for £100,000 (€117,483) or less, prices not seen in the notoriously pricey London market for more than a decade. At another auction, eight out of 10 properties on the catalogue were repossessions.

According to the paper, properties worth £250,000 last year are now going under the hammer at £100,000 or less after being repossessed by lenders.

Those lenders are auctioning off the homes to raise quick cash.

The paper cites the example of a three-bedroom flat in Brixton, valued at £180,000 in October 2007, being auctioned for just £79,000. A one-bed flat in a part-timbered block in the more salubrious area of East Dulwich went for £100,000, less than half its £240,000 value of a year ago, while the value of a two-bedroom flat in a Victorian semi in Forest Gate in east London has crashed from £235,000 to just £95,000.

The return of the sub-£100,000 home brings some hope to first- time buyers brave enough to jump into the market, assuming they can raise a mortgage.

Even at a cut-price £100,000, most lenders will demand a minimum deposit of £25,000.

For those who can get them, loans should become even more affordable after tomorrow, when the Bank of England's monetary policy committee is widely expected to slash interest rates once again. Hard on the heels of last month's shock 1.5-point cut, rates look set to come down by another full point, taking them to a historic low of 2 per cent.

Lenders, particularly those in receipt of government bailout cash, are coming under increasing pressure to pass on the rate cuts to their customers in full and without delay. That includes lenders with "collars" on their tracker mortgages - loans that are tied to the Bank of England base rate - which enable them to keep rates at a certain minimum level.

In the case of Nationwide building society, the collar is 2.75 per cent, while at Halifax, owned by HBOS, the collar is 3 per cent. Many borrowers with tracker mortgages failed to spot the collars in the small print when they took on their loans and the row over the artificially high rates will intensify once the Bank of England cuts to 2 per cent or less.

If the lenders fail to bow to pressure, they could find themselves hit with a raft of misselling claims along the lines of the great endowment mortgage scandal of a few years back.

Lenders were forced to pay out more than £1 billion in compensation to borrowers who were missold endowment policies linked to their mortgages, and the industry will be keen to avoid a rerun this time round.

Recent news on the housing market has been almost relentlessly grim - the number of mortgages approved for house purchases slumped to a record low of 32,000 loans in October and the value of the loans also fell, reflecting tumbling house prices and lending restrictions.

Royal Bank of Scotland provided a glimmer of hope for hard-pressed homeowners earlier this week when it unveiled a more lenient policy towards those who fall into arrears. There have, however, been mixed reactions to its headline-grabbing promise that it will allow borrowers struggling to repay mortgages at least six months before instigating repossession proceedings.

While the move was welcomed by some consumer groups, others branded it a marketing ploy, pointing out that many other lenders already wait six months before taking action. Typically, it takes 12 to 15 months from the first missed payment for a home to be fully repossessed.

In some cases, delaying the process would be the worst thing to do, particularly when house prices are falling. A delayed sale would simply reduce the amount of cash raised, thus increasing the outstanding debts of the distressed borrower.

Royal Bank of Scotland is keen to win a few favourable headlines - it is, after all, now controlled by the taxpayer. After accepting £15 billion of emergency bailout funding, the bank, which takes in NatWest, is 58 per cent-owned by the UK government. At the last calculation, the taxpayer is sitting on a paper loss of £2.5 billion on its investment.

• Fiona Walsh writes for the Guardiannewspaper in London