Will 2011 See Improvements to the UK Housing Market?

by Mark Johnston

Since the financial crisis and mortgage market turmoil brought about a collapse in the UK’s property prices, home owners have been asking themselves when things will start getting better. There is never a better time to ask this question than at the start of a new year. A fresh start at the beginning of a new year as well as high hopes from home owners has got many asking whether this will be the year that the British housing market sees a return to sustained and meaningful growth.

With the economy feeling the bite of government cuts  and rising inflation threatening interest rate increases, many experts are predicting that the market will remain problematic well into 2013. This together with the potential for more quantitative easing may mean that property prices continue to fall with losses up to 20% predicted.

Although this may be the view of many it’s not everyone’s outlook for the new year. Some experts are suggesting that 2011 with see a fairly good recovery for house prices especially when taking the usual boom and bust cycle into account. The UK economy needs to continues to improve, which could be more difficult than first expected given the recent 0.2% shrinkage. If the UK starts to make a recovery and doesn’t slip back into a double dip recession, then would be home buyers will regain confidence and will put pressure on housing demand. The lack of property and high demand would then hopefully start to push prices up.

The bad news for borrowers though will be that any recovery will see interest rates returning to a more normal level but this will take some time. The  Monetary Policy Committee warned that  interest rates would need to rise and some are even predicting increases as soon as the first quarter of this year with rates rising up to 2% by the end of the year.

The biggest concern for the housing market for 2011 is the results of the mortgage market review. If the FSA introduce tougher new rules on lending, first time buyers could find themselves left out in the cold with no way of raising home finance. If these would be home owners, even with reasonable deposits and good credit history’s can’t get finance then the whole market would be impacted.

Even without the new rules, the Council of Mortgage Lenders are concerned that lending could drastically reduce as government support ends.

With a bit of luck, all in all, 2011 could well be the year the tide turns. More lenders are expected to enter the market which would create more competition and ultimately drive prices down.  All the news relating to mortgages and house prices seems to be doom and gloom but it probably sounds worse that it actually is, after all who wants to read about reports that everything is hunky dory.

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