Another UK property crisis in 2010

09-14-2009 10:13

According to the ITEM Club, Independent Treasury Economic Model, the UK will face another property crisis in 2010 as the availability of loans for house purchase remains constrained. In the first six months of 2010 prices will drop moderately, while they will remain stable for two years, the report by Ernst & Young LLC’s Item Club showed. Mortgage lending could “continue to be expensive and limited” due to banks reconfiguring their assets and liabilities as the economy is finding its path out of recession, the Independent Treasury Economic Model reported.

UK property crisis

Nationwide Building Society, headquartered in Swindon, England, reported in August that house prices in the UK showed the strongest increase since 2006 while the nation also suffered from a shortage of available houses. The housing market crisis eliminated 15% of the property values since the property boom, which lasted 10 years, reached its top two years ago and resulted in mortgage holders being more obliged than the value of their immovable properties.
Hetal Mehta, senior economic adviser to the Independent Treasury Economic Model, commented: “The present stabilization in the property market is an illusion. The acute scarcity of available houses is proved by strongly increasing prices, as a large number of property owners struggle with the fact that the value of their home is below the value of the amount owed on the mortgage. Homeowners are also unwilling to sell as this will result in losses, suffered in the last two years.”

Approved mortgages

The Council of Mortgage Lenders reported today that the number of mortgages in the UK went up by 24% in July in comparison to last month’s 56.000. However, the number of approved mortgages is below 50% of the same period two years ago, proved by the central bank’s mortgage figures.
The Bank of England stated on September 10 that it will proceed with a program to obtain debt securities that represent a value of £175 billion ($292 billion) as they preserve the main interest rate of 0.5%, which is the lowest level in its history. Meanwhile, the administration intends to create a solid and long-lasting economic recovery after the most intense slump that his generation has seen.

Lagging behind

Property prices will not reach the top level of 2007 within the next five years, the research group stated. The revival will be stimulated by the economic recovery and a sustained scarcity of new houses.
The administration targets on creating 240.000 new houses in the period until 2016, while this plan already lags behind as the building industry contracted, according to this Monday’s report. The ITEM Club calculates that the number of new houses finished will be less than 175.000 in 2009.
The group reported that the Southern part of England will be behind the economic recovery in the near future due to initial buyers finding difficulties buying new properties.
Andrew Goodwin, senior economic adviser to the ITEM Club, said: “To restore the market to a normal state, initial buyers should be able to afford new houses again. The present situation of relatively few transactions, mainly caused by speculative cash buyers, will probably continue.”