Most of the UK house price indices have reported small rises over the last quarter – Nationwide reported a rise of 0.9 per cent in September, which brings its year-on-year figures back to 2008 levels. Halifax also reported increases over the last few months – it says house prices rose by 1.6 per cent and reported the highest rise over a quarter in two years.
But Fitch says that it expects that UK house prices will fall approximately 30 per cent overall from the October 2007 peak, and prices are currently 13 per cent down from that peak, having dipped as low as 19 per cent down at the start of 2009.
Fitch Ratings head of global economics and EMEA sovereigns Brian Coulton says: “The UK’s average house price to income ratio remains significantly higher than the long term average. A 30 per cent fall from the peak of October 2007 would bring this ratio back in line with the long-term average.”
Fitch expects UK GDP to turn positive in 2010 and continue to grow into 2011, but despite this expects unemployment to increase well into 2010.
Fitch Ratings head of UK residential mortgage backed securities Alastair Bigley says: “The drag of rising unemployment and low wage inflation is yet to be significantly reflected in house prices. Unemployment will peak next year and remain close to that high into 2011 – this will inevitably weigh on house prices.”
Furthermore, Fitch says recent easing in credit availability may also prove to be temporary as it expects lending appetite to be pro-cyclical. It says deep interest rate cuts of late 2008 have eased affordability for a large proportion of mortgage borrowers but rising unemployment could trigger deterioration and mortgage lenders would respond by further tightening lending criteria.
Bigley says: “Despite the fact that a global economic recovery is underway, the economic fundamentals do not auger well for a sustained strong recovery in the UK housing market. Although households are reducing debt and increasing savings, the upfront cost of house purchase for first time buyers is likely to stifle housing demand.”