This week Halifax reported that house prices have increased by 0.8 per cent in August and Nationwide reported that last month was the fourth month in a row where UK house prices had increased – but the property experts expect much more pain into 2010.
Jones Lang LaSalle head of residential housing James Thomas says the pick-up is “irrational” and without improved lending, a slowdown of unemployment or an increase in new properties, the market will struggle going into 2012.
He says: “The economic fundamentals that have supported the upturn, most notably the constrained supply of housing for sale, will be eroded as unemployment hits a peak and mortgage lending remains weak. It is impossible to ignore the short-term risks posed to the UK residential sector by rising unemployment and poor credit availability.”
Smartlandlord.co.uk managing director Kevesh Thukaram agrees. He says: “Property prices are definitely recovering but only in the short-term – the economy isn’t out of the woods yet. We are in the middle of a recession not a sustained recovery – this is a false dawn in a mini-bubble.”
Most advisers I talk to are pinning their hopes on house prices continuing to grow into the new year – if equity grows, risk shrinks and lenders are more likely to offer mortgages, which will kick-start the market and hopefully the real economy at large. But Thomas goes as far to say that house prices will fall by 7 per cent in 2010 – if that is the case the UK can expect the mortgage drought to run in the next few years.
This means people will not want to move, first-time buyers will be unable to take their first steps and the buy-to-let market will continue to be plagued by ‘accidental landlords’. Lenders will retreat into their shell even further and loan-to-value ratios will become ever smaller.
Also, if the dearth is to continue for years rather than months, what does that mean to the continuing repossession and arrears forbearance being shown by the mortgage lenders?
If unemployment increases and mortgage activity remains stayed, then how long can a lender keep offsetting owed debt while assets decrease in value? GE recently revealed it was losing more than £1m in the UK every day thanks to rising arrears – if house prices keep falling can the Government-backed forbearance measures still continue?
What do you think? Are we out of the woods or is this just a false dawn? Tell us your thoughts below.