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U.S. subprime collapse reaches Welsh town

Housing prices are falling, and first-time buyers can't get credit. Sound familiar?

August 17, 2008|Jane Wardell | Associated Press

WREXHAM, WALES — During a bustling lunch hour in this Welsh commuter town, 25-year-old Richard Williams is one of the few who pause to look at properties for sale in a real estate agent's window -- and he isn't buying.

"I'd love to, but I'm single and I can't afford to buy anything on my own; nobody would give me a mortgage," explained Williams, a delivery driver who recently moved back home with his parents after his rent went up.

The plight of Williams -- and hundreds more like him -- has made Wrexham, situated on the doorstep of the mountain peaks of the stunning Snowdonia National Park, one of the towns hardest hit by the global credit squeeze.

Those troubles are increasingly seen as a microcosm of the situation around Britain. With falling house prices, rising rents and more expensive mortgages coming on top of soaring fuel and food costs, there is a feeling that Prime Minister Gordon Brown's Labor government moved too slowly to ease the fallout from the U.S. subprime market collapse.

At the start of the decade, Wrexham -- the largest town in north Wales, with a population of about 43,000 -- boasted some of the steepest house price increases in Britain. The long boom fueled a regeneration of the town, which is just a short ride from the cities of Chester and Manchester in England.

Hundreds of new homes went up on the outskirts of Wrexham, adding contemporary buildings to the mix of modern shopping streets, Tudor-style buildings and the medieval church in the center of town, which has a long history of mining, brewing and leather tanning.

Now, many of those completed apartments and houses still await sale, developers have scaled back housing projects, repossessions are up, and the half a dozen or so real estate offices are empty of prospective customers.

House prices in Wrexham fell 5.4% in the year to May after recording the steepest drop anywhere in the country in April, according to the Land Registry, with an average price of 143,460 pounds (about $268,000).

That compares with a 1.8% decline across Britain over the same period to an average 183,266 pounds. Mortgage approvals are down 64% nationally from last year.

Britain's housing downturn is still less severe than the slump in the United States, where home prices nationwide have fallen 18% as of May from the peak of the market in July 2006, according to the Standard & Poor's/Case-Shiller 20-city index.

The problem in Wrexham is the sudden cutoff of mortgage credit to first-time buyers, who would normally benefit from lower prices.

Britain's housing market is based on a chain system, meaning sellers must wait for their purchasers to complete the sale of their own property. It's a house of cards that collapses if one deal falls through, making first-time buyers the key because they don't rely on the completion of another deal.

At the Whitegates real estate agency in Wrexham, proprietor Irene Jones said first-time buyers were caught unawares as many generous mortgage deals -- including 100% financing -- were suddenly pulled from the market after the collapse of now-nationalized mortgage lender Northern Rock.

The loss of those first-time buyers has had a secondary effect on mid-range sales and will eventually permeate the higher end of the market, Jones added.

"It's a huge problem," Jones said. "Unless you have got the key to start the engine, it isn't going to go, is it?"

Jones said sales volumes at her business were down 30% from last year, while sales values were off 18% and instructions to sell had dropped 44%. Only offers were up -- about 22% -- which Jones attributed to people making "silly offers" in the hope of getting a cheap deal.

Derwyn Roberts, a retired woodworker and harp restorer, is unable to sell his two-flat property just a short stroll from the main shopping street, despite dropping his asking price from 275,000 pounds to 249,000 pounds.

Roberts accepted one offer for less than that several months ago, only to see the buyer pull out, forcing the 80-year-old to drop his own offer on a smaller apartment a few streets away.

"It means I'll have to wait for my retirement proper," said Roberts, who is now considering renting out the downstairs apartment in his house.

Across the road from Roberts, a 22-unit development of town houses has been scaled down to 16, about half of which still display "for sale" signs by their curtainless windows.

Although the problem may have been imported from the United States, there is a feeling in Wrexham that the government was too sluggish in tackling the crisis after the collapse of the U.S. subprime mortgage market.

With many people caught by surprise by the housing downturn -- Jones says she still gets first-time buyers coming in assuming they can get 100% financing -- the fallout has been devastating for some.

Linda Pytches, a debt counselor with Christians Against Poverty in Wrexham, said she has seen an increase in business in the last few months as more people struggle to pay their mortgages.

"It's landlords as well who have overstretched," Pytches said.

What is worrying many people in Wrexham is the uncertainty about how far the market still could fall. Many economists are still shying away from predicting an all-out housing-market crash in Britain -- citing higher employment and more benign economic conditions compared with the last crash in the early 1990s -- but most have dramatically downgraded their forecasts.

Among the most pessimistic, Halifax Bank of Scotland is predicting a 9% slide in house prices this year, Capital Economics forecasts a 10% drop, Global Insight is estimating a 12% slump and the Council of Mortgage Lenders sees a 7% decline.

It's clear that Britons won't be returning to the boom times when many remortgaged their homes to fund vacations and other luxuries.

"We have had it too good for too long and we haven't put any money away for a rainy day," Jones said. "Now it's thundering."

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