Fragile recovery for UK housing

Published:  22 February, 2010

UK: Encouraging signs that the housing market is in the midst of a fragile recovery continue to emerge, according to the Construction Products Association's February Market Trends report.

here has been a revival in interest and activity. Mortgage approvals and property transactions have improved strongly over the past 12 months, but nonetheless remain weak on any historical comparison.

Lenders are slowly regaining confidence in the residential property market and the latest Credit Conditions Survey from the Bank of England suggests that the availability of secured credit increased in late 2009, and should continue to do so, albeit modestly, in early 2010.

Much of this increased credit availability, however, is exclusively the reserve of borrowers seeking loan to value ratios of up to 75%.

Forecasts for house prices in 2010 vary widely, with projections ranging from -10% to +5%.

The recent acceleration in both consumer and producer inflation increases the likelihood that the base rate will rise at least once in 2010, and is just one of the variables contributing to this uncertainty.

The effect that rising interest rates will have on the housing and mortgage market remains to be seen. The end of the stamp duty holiday, rising unemployment and the sustainability of the economic recovery are just some of the factors that could potentially plunge the housing market back into decline.

In addition to demand side issues, supply side factors, such as land availability, the property mix and regulation, are also vital, even when activity is so subdued.

Land prices have fallen significantly but it is in areas where land is most scarce that demand is strongest and developer activity is currently focused. Pressure on land prices in London and the South East is likely to resurface relatively quickly.

Flats share of total completions increased dramatically during the 2000s, from just 17% of the total in 2000/01 to 46% in 2008/09, resulting in an oversupply of flats in many regions.

The speed at which this trend has been reversed in 2009 suggests that developers were quick to put their flat developments on hold.

Government planned to increase the rate of housebuilding to deliver 240 000 a year by 2016 were always ambitious, but following the unprecedented collapse in the market, now seem little more than wishful thinking.

The CPA forecasts that in the current market work will start on 117 000 units in 2010. Starts are anticipated to continue to rise at a robust annual rate from this low base through to 2013.

During 2013, however, work is predicted to start on only 162 000 units, a considerably lower level than the Barker Review concluded was necessary and the risks to this forecast are weighted to the downside. 

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