House prices 'to fall further'

12/10/2009

The UK property market has yet to hit bottom, a downbeat study has shown.

According to experts at credit ratings agency Fitch, unemployment trends will put peoples' personal income under strain.

The firm added that this factor would contribute to a further 17 per cent decline in house prices in the future.

Job losses are known as a "lagging indicator" of economic growth - meaning that increases in unemployment caused by the recession generally continue for some time after the downturn has ended.

Business groups predict that the jobless total will increase by at least 500,000 by the end of 2010.

This will lead to the source of many households' income - through which they make their mortgage repayments - being shut off.

From here, repossessions would rise, demand for property would slump and negative pressure would be put on house prices as a whole.

The value of the average UK property is thought to have increased over recent months, an increase helped by low Bank of England rates and an alleviation in the economic downturn.

However, Fitch branded these increases a "false dawn" for the market as a whole.

"The drag of rising unemployment and low wage inflation is yet to be significantly reflected in house prices," Alastair Bigley, head of UK RMBS at Fitch Ratings, said.

"The increase in properties being put on the market is already having an impact by suppressing house prices," EuroDebt director Kevin Still said.

"Banks have already warned of a second dip as we come out of recession and EuroDebt expect that re-mortgaging and equity release are unlikely to be vehicle for dealing with personal debts in the near future.

"We expect to see rising personal insolvencies and an increase in demand for debt advice. People struggling with mortgage and unsecured debt repayments are likely to be hit with increasing interest rates and need to plan ahead before 2011. This is particularly true for those coming off tracker mortgages in 2010. It only requires a small change in disposable income to move financial management from ‘just coping’ to a 'debt spiral' where people use credit cards and short-term credit to pay other credit commitments."

Tags; Housing Debt and Bills, Young Family Finances,

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