No reason to expect UK property crash

Thursday, October 11, 2007

IMLA, the trade association representing most lenders who fund themselves via the wholesale markets, has reacted to the RICS' survey published today (11 October).Latest figures indicating that house prices are beginning to ease should not be interpreted as an early indication of a housing market price crash.

It is inevitable that the housing market could experience a slowdown in activity and pricing levels following the disruption in the financial markets which led to a temporary reduction in the availability of mortgages, tightening of lending criteria and upward pressure on pricing alongside successive Bank of England interest rate rises.

With the well-publicised problems at Northern Rock, consumers have been quite understandably adopting a wait-and-see approach, not because they fear the worst but because they are unsure of what the immediate future holds. This doesn’t affect the fundamentals of the market, which remain solid. Employment remains high, interest rates remain historically low – despite recent volatility – and the economic backdrop remains positive. As far as lenders are concerned, a number have been affected by the tightening of availability of wholesale funding in the money markets and the virtual closure of the securitisation markets on the back of worries that there could be contagion over here from the US sub-prime problems.

However, this was a temporary issue and the markets are now slowly coming back to life. There is now a good supply of funds available to the consumer. Plenty of lenders have plenty of money to offer to creditworthy customers, and in most cases there’s no reason for a shortage of funds to be an impediment to normal home buying or remortgaging activity. The housing market is likely to continue to tick over at both lower and slower levels for a number of months, but there is no reason to expect any major falls in property prices.