UK housing market still struggling

The UK housing boom reached its peak in 2007 but since then, house prices have taken a knock, ravaged by the credit crisis and the effects of the recession. However, data for 2009 suggest the market is now showing signs of recovery. The Nationwide declared that house prices rose by nearly 6% over the year (albeit from a low base) which should come as welcome news for many beleaguered householders – but does it herald the start of a sustainable recovery?

The British Bankers’ Association (BBA) November release announced that the number of mortgage approvals for house purchase was holding up and were back to similar levels of two years ago. However, the average value of those mortgages remained slightly lower than 2007 and remortgages are virtually non-existent as existing borrowers revert to low variable rates when their mortgage deals end. Ernst & Young’s Item Club expects the UK housing market to get worse before it gets better as tight credit conditions linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply.

For now, however, exceptionally low interest rates are attracting some buyers, with the growth in demand particularly strong amongst buy-to-let investors and cheaper properties. However, UK unemployment is still over 2.4 million and, despite a small fall, the outlook for jobs is not all positive. Even if the UK economy maintains its faltering signs of growth in Q1 2010, this can only keep the pressure on a still-fragile market.

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