The UK housing market looks set to get a major shake up soon with the launch of a cheap online estate agency service with the backing of the Tesco supermarket group. 

Spicerhaart, an estate agency in Bristol, is launching the new website iSold.com, initially aimed at sellers and buyers only in the Bristol area. Tesco will also advertise the service to users of its own website. 

The news comes shortly after the Office of Fair Trading (OFT) recently called for the establishment of more innovative online estate agency services to help drive down prices. 

The online service will have two key features. All dealings with both sellers and buyers will be conducted online or via the phone, with the overall business being kept separate from the Spicerhaart outlets in the High Street. 

And instead of the standard estate agency fees, of between 1.5% to 2% of the selling price, a basic online selling service will cost £999. 

As well as being advertised on the iSold website, homes for sale will also be advertised on property portals such as Rightmove and Zoopla. 

Neither iSold nor Tesco would divulge the nature of the commercial agreement between them but it is worth noting that Tesco already has a similar link up with the flower selling service Interflora. 

Back in 2007, Tesco briefly launched an online property selling business called Tesco Property Market, which allowed personal sellers to by-pass estate agents. In return for a standard £199 charge the sellers were able to advertise their own homes for sale and put up a Tesco notice board outside their homes. 

However, this meant that Tesco was deemed to be offering estate agency services and it quickly decided it could not make money if it had to comply with the requirements of the estate agency and property mis-description laws. 

Last month, the OFT called for the injection of greater competition into the estate agency business to help drive down prices. Its main recommendation was that sellers should haggle with estate agents to agree a lower fee than the typical 2% that is often charged. 

But the regulator also called on the government to change the law to make it easier for people to set up online home selling services, especially those aimed at people who wanted to sell their own homes themselves rather than pay an agent to do it for them. 

At the moment, online-only estate agents account for only 2% of all property sales in the UK, compared with 15% in the USA. With the growing use of the internet by all generations and the effects of the recession meaning that people are trying to save money wherever they can, we can expect online estate agents to be a large growth business in the next few years.

There was a low start to the year for the UK mortgage market as a sharp drop in mortgage approvals in January demonstrates. 

The Bank of England has said that the number of home loans approved for house purchases in January fell by 17% compared with December. The 48,198 approvals was the lowest number for eight months, but was in fact still 43% higher than a year earlier. 

Most analysts have made the point that the end of the stamp duty holiday was behind the drop and that it was not symptomatic of a weaker market or a return to the unwillingness to offer credit on behalf of lenders we have seen before. 

The stamp duty threshold dropped back to £125,000 on 1 January, prompting a rush on mortgage approvals and completed home sales in the final months of 2009. The government initiative, which had temporarily raised the threshold up to £175,000 for just over a year, was aimed at halting a rapid slump in the property market. 

In addition to the stamp duty holiday ending, analysts have blamed the severe winter weather for playing a part in driving gross mortgage lending down to £10.2bn from £13.5bn in December. 

Last week, the Nationwide building society pointed to the slowdown in lending as the reason behind the first fall in UK house prices for 10 months. Nationwide said average property values dropped by 1% in February compared with January, with the average home worth £161,320. 

My judgement is that this downturn in transactions will prove to be only temporary and that buyer interest will rebound in the February data. The end of the stamp duty holiday will have artificially inflated the December figures and depressed the January figures, but this effect will be contained almost entirely in those months only. 

The Bank of England figures also indicate that the record low Bank rate of 0.5%, and low variable mortgage rates, has deterred people from signing up to new fixed-rate mortgages.  

Some £500m was borrowed above repayments in January, up from £265m in the previous month. Within this, net credit card borrowing increased by £171m and other loans and advances increased by £330m. 

Repayments had outstripped borrowing for most of the second half of 2009 as borrowers also found it difficult to secure further loans. 

In conclusion, this month’s figures look quite bad but the stamp duty holiday and extreme winter weather does convincingly explain this. During the next few months we should see a return to slow but steady growth in the UK housing market.