How has the Double-Dip Recession Affected the Housing Market?

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double dip recession

You won’t need telling, but the UK faces the most serious economic crisis since the Second World War. And with the economy recently ‘double-dipping’ back into recession after a brief period of recovery, it’s the worst in 50 years.

What has this meant for house prices? And how will the double-dip recession affect the market in the coming months?

House prices across the regions

Parts of the South have shown remarkable resilience in the face of such bad economic news, while large parts of the North, Midlands, Wales and Scotland have suffered serious price falls.

To give an example of the disparity, recent figures from Nationwide show prices in Scotland 11% below the 2007 market peak, in the North of England they’re down 14%, but in London prices are back to where they were (and actually higher in the most desirable parts).

These figures exclude inflation and if this is taken into account, Halifax reports that prices are down a net 20%. But that’s an average, and as the Nationwide figures show, regional variations are considerable.

Recent price falls

House prices fell slightly in July, according to the Royal Institute of Chartered Surveyors’ (RICS) latest survey. RICS says the problems homebuyers face in getting a mortgage in the first place is having a big impact with buying and selling activity generally still well down.

RICS believes this situation is set to continue and means we should expect further price falls over the next 12 months.

Worsening prospects?

Halifax also reported a drop in prices in July, of 0.6%. However it believes the market will remain largely flat if the “economic climate in the UK does not worsen substantially”.

This is a crucial point. If we don’t pull out of the double-dip recession, the economic climate would certainly be worsening ‘substantially’.

Here comes the cavalry

The Government’s Funding for Lending Scheme, which helps provide cheap funding to the banks, was announced as a response to the double-dip recession figures. And it may be impacting on mortgage borrowing costs; five-year fixed rate mortgages have recently hit record lows.

Experts such as mortgage broker John Charcol’s Ray Boulger feel the scheme will boost the mortgage market. Boulger says he thinks there’s a “very genuine prospect of increased funding”.

If first-time buyers and home owners considering moving can be tempted by historically record low mortgage rates, it could help underpin prices.

Below average lending

However, the lending figures are still well below what’s considered ‘normal’. In fact, it’s at roughly half that level, as Howard Archer of IHS Global recently told the BBC.

Transactions down

Unsurprisingly, therefore, transaction levels are also down. These hit a record low in May and Dr Peter Williams, Chairman of Academetrics, the only organisation which uses the actual sold prices of every property in England and Wales, believes this will hit prices.

Williams recently told the Guardian the market could be about to see a sustained decline, saying “there is much to suggest that it will”, although he cautiously added “in reality there is a spectrum of views from analysts ranging from a price fall of 7% to a 3% rise over the next six months.”

Crowded island argument

Short-term the double-dip recession might have a negative effect on prices, but some experts point to the fact that Britain is a crowded island and that inevitably a ‘lack of supply’ will support prices and make them rise in the long term.

However, if you look at the example of Japan, an island more ‘crowded’ than ours, prices peaked in 1987 and are still almost 50% below that level, as this graph shows.

Perhaps this could happen here? Japan had, and has, huge levels of debt, and so do we.

Complicated picture

This all paints a cloudy picture, which is as it should be with something as complex as the factors affecting house prices.

Simply don’t believe anyone who tells you they know for sure which direction the market is heading in.

It’s a home, not an investment

It’s certainly true that most people who buy a home, and can afford the mortgage payments, rarely look back at their renting days with anything other than relief that they’re over. Renters, on the other hand, are not as happy with their lot.

And also bear this in mind; if you ask most of the house price experts and pundits in the media if they own their own homes, the answer is mainly ‘yes’.

Image credit: Images_of_Money

Policy Expert

Policy Expert is an online home insurance broker, dedicated to helping customers find the insurance policy that’s right for them. We’re driven by a desire to help you find not only the best value insurance, but the right insurance for your individual needs. To speak to one of our experts, call 0203 014 9300 or email ask@policyexpert.co.uk

The views expressed here are solely those of the author and do not necessarily reflect the views of Policy Expert.