A false dawn in house prices?
According to a recent report published by the Economic and Social Research Council, the recent rises in house prices are going to be reversed. As the government has to cut it’s expenditure, economic recovery will waver and house prices will fall again.
This in turn is expected to create a spiral as potential sellers take their house off the market and buyers find it harder to find what they want and, disillusioned, they too effectively leave the market. Then as household wealth falls, consumer spending falls and this again impacts on house prices.
The Council predicts that it could take three years for UK house prices to sustainably break out of this spiral.
If this is true, it is going to be three four, or even five, years before we see the mortgage lenders pluck up enough courage to accept low deposits as in a falling housing market. When markets fall, the equity homeowners have in their property can be eaten up very quickly leaving them in negative equity - and leaving the mortgage lender facing a potential loss on their lending. For the time being we are unlikely to see any lenders reduce their deposit requirements and this is not good news for first time buyers.
Let’s hope that the Economic and Social Research Council has got it wrong!