RMI prospects slump on house price forecast

Published:  08 October, 2009

LONDON: Yesterdays' upbeat assessment of UK house price rises driving the RMI market has been dashed.

Fitch Ratings said yesterday that the recent rises in house prices will prove to be a false dawn because of the broader problems facing the British economy.

The ratings agency predicted that house prices in Britain would fall by around 30% in total from the October 2007 peak, indicating that they have a further 17% to fall.

Rising unemployment, expected to peak next year and remain at that level into 2011, as well as a low-wage inflation and poor credit availability, will drag down house prices, the report said.

Alastair Bigley at Fitch said: "Despite the fact that a global economic recovery is under way, the economic fundamentals do not augur well for a sustained strong recovery in the UK housing market."

Halifax yesterday reported house price rises but Bigley said theses rises, driven by a lack of supply and cash-rich buyers, were not sustainable.

Mr Fitch says the UK's average house price-to-income ratio is likely to come down to below the long-term average as it did during the early 1990s recession. The ratio is currently "significantly higher".

But Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite further likely gains in the very near term, we suspect that house prices will be prone to significant relapses and will probably be no more than flat overall between now and the end of 2010."

Also optimistic is Ray Boulger, senior technical manager at John Charcol, who said: "I think during the next few months there is every indication that prices are going to keep rising."

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