UK house prices: UK house prices did better than feared in 2009. Up until February, house prices had fallen 21 per cent from their autumn 2007 peak. Since then, they have risen 10.2 per cent, according to Nationwide, a UK mortgage provider. But it's unlikely the good news will persist next year.
It was a great year to be a cash-rich buyer. With mortgage availability two-thirds down on pre-crunch levels as lenders rediscovered conservative banking, the stock of buyers was hugely reduced. Coupled with sellers sitting on their hands and slightly milder than expected unemployment, prices rose in a thin market.
That mix now seems to be changing. Buyer enquiries have dropped in recent months, while seller instructions have risen. But those who want to borrow still cannot - mortgage supply has more than doubled from its monthly low of 27,424 but it is still well below pre-crunch norms.
Unless the British economy recovers sharply in 2010, banks will still feel too wary to offer loans at high proportions of the price and high multiples of incomes. Lenders still have large stocks of impaired loans to work their way through. That caution will squeeze the supply of first-time buyers. If unemployment turns up, more borrowers will begin to default. House price growth would stall, or reverse.
But an economic recovery won't necessarily solve the problem, either. Interest rates would probably have to rise to keep inflation at bay. That would be tough on borrowers and buy-to-let landlords who have been kept afloat by 0.5 percent policy interest rates. A wave of forced selling could ensue.
Rich foreign buyers, who don't need bank financing may have helped protect London. Prices on prime central properties have indeed picked up over 7 percent since March, although that followed a 23 per cent dip from 2007, according to Savills , a property consultancy.
But this wall of money driving demand will persist only so long as London is desirable for the richest. Savills expects a 1 per cent drop in 2010. The capital may not be in a position to lead the UK out of its housing slump.
