UK property market to be hit by spending review and could take five years to recover it is suggested

The UK’s Comprehensive Spending Review to be announced on Wednesday is likely to have a negative effect on the property market as one group of analysts predicts price will fall by 5% in the next 12 months.

The latest real estate index from Rightmove published today (Monday October 18) shows that the average asking priced increased 3.1% in October to £236,849.
 
But the report points out that the general market outlook remains poor, with the number of properties per branch rising from 69 in October last year to 78 now, and mortgage availability continuing to deteriorate.
 
It describes the rise in asking prices as ‘illogical’ and says sellers should not be encouraged into asking more as they will be very disappointed as research shows that asking too much when you put a property up for sale can actually damage the chances of a sale.
 
‘Given the challenges of the current market, the behaviour of sellers in raising their average asking prices by over £7,000 takes some explaining. Every year, vendors coming to market after the summer holidays hope to take advantage of any positive price impetus from buyers who are keen to be in a new home before Christmas. Between 2007 and 2009, October sellers tried higher prices. It’s not likely to be a successful tactic, though it is a sign that many sellers are not experiencing high levels of financial stress but can’t afford to accept a lower price if they are to make their sums stack up for  the next move,’ said Miles Shipside, director of Rightmove.
 
‘This month’s Comprehensive Spending Review is likely to have a negative effect on housing market sentiment and consequently challenge further any perception of pricing power among sellers,’ he added.
 
But even more gloomy is the latest predictions from the influential financial forecasters the Ernst & Young Item Club. It is not only predicting a double dip in the UK market but says it will take five years for the sector to recover.
 
Peter Spencer, chief economic adviser, said that the property market will remain depressed for years to come because banks are refusing to offer affordable loans to first time buyers.
   
‘We have been very bearish on the housing market for some time. Demand from first time buyers is drying up. What really matters for the housing market is the number of people who can get a decent 80% or 90% mortgage,’ he explained.
 
Spencer said that price increases earlier this year were due to a shortage of houses on the market, but that these had encouraged more people to try to sell their home. He added that property values had also been buoyed by cash buyers who did not need to raise a mortgage, but there are only a finite number of those.
 
The Item Club report said the housing market would also be held back by tax rises, the slow growth in earnings and a likely rise in unemployment due to public sector job cuts.