Fragile recovery set to disrupt the housing market in 2011

Anaemic growth in disposable incomes and higher unemployment throughout 2011 will cause house prices to fall, particularly in regions most vulnerable to public sector cuts. However, affordability for first-time buyers will reach an 8-year high in 2011 as mortgage interest rates remain at record lows and house price growth weakens.

cebr expect the ongoing fragility of the recovery to dampen demand for mortgage lending, as households continue to repay their debts and rebuild their savings.

House price growth will resume at a slow pace from 2012 onwards as banks’ lending criteria are relaxed further and consumer confidence recovers from a year of rising inflation and uncertain employment prospects.

Shehan Mohamed, the report’s author and economist at Cebr said:

“We expect to see household earning power suffer over the next year or so, due to higher inflation and weaker employment prospects as the economic recovery remains fragile.

“Lower consumer confidence throughout the year is expected to rein in demand for mortgages, which will average around 50,000 per month – still around 50% lower than pre-credit crunch levels.

“The Bank of England’s loose monetary policy stance in the face of the impending public sector cuts will keep mortgage rates anchored. Indeed, affordability for first-time buyers will reach an eight-year high this year, with first-time buyers spending an average of 24.2% of their disposable incomes on mortgage payments.”

Douglas McWilliams, Chief Executive of Cebr added:

“We expect house prices to grow tentatively over the coming years, given that household incomes are being squeezed and banks are still wary of lending. There is currently significant uncertainty in the market caused by the Government’s spending cuts and a choppy recovery, which has greatly impacted transaction levels.”

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