Annual rate of house price inflation will probably reach low point in Winter 2008/09 in region of minus 15% per annum (mortgaged properties)

The dearth of mortgage credit is exerting a distinctly negative impact on the housing market. Average house price inflation (UK approvals) has decisively breached the minus 10% per annum level on both the Halifax and Nationwide indexes. In the current climate there is a strong correlation between credit availability and average house price, subject to a short time lag. Given our premise that funding pressures are probably approaching a peak, average house prices are likely to reach a low point within the next 3-6 months. The vast scale of the credit crunch is overriding the deficit between housing demand and supply in the UK, which has been a key driving force in the UK housing market, given the high density of population, especially in London and South East England. The principal risk from the current scenario is that once credit conditions ease, there will be a new house price boom. There is a large volume of untapped housing demand, especially in the first time buyer market. Events of the past year have shown the importance of quality housing, whether owner occupied or rented – it is not just a question of the number of housing units. The scale of any future house price boom is likely to limited by a moderate increase in the underlying level of unemployment, probably to an average level in excess of 6%. The financial sector is undergoing a restructuring on a scale not dissimilar to the restructuring of UK manufacturing industry in the 1980’s.

(This article represents our view only and no action should be taken without expert advice. Please call us if advice is required).