UK house prices could fall again

Despite reports of growth in UK average house prices in the latter half of this year, Fitch warns that values could fall again in the next couple of years.

The credit ratings agency warned that growing unemployment and continued constraints on mortgage lending could force house price inflation to turn negative again.

Fitch Ratings stated that a recovery in the property market was unlikely in the near future, and it expects prices to come down nearly a third from the peak level they hit in August 2007.

Fitch's UK housebuilder analyst Jean-Pierre Husband, said:

"A quick and sustainable improvement in UK housing conditions is unlikely, and this will restrict the potential for rating upgrades.

"The main economic indicators point towards a period of stagnation at best, or at worst a double-dip contraction in house prices."

A Fitch report pointed out that: "Over 66% of UK mortgage borrowers are now on floating rate mortgages, compared with 48% in August 2008, and their ability to service existing mortgage debt would be adversely affected by any hike in interest rates."

Capital Economics shares Fitch’s pessimism about the prospects for the UK housing market.

Property economist, Seema Shah, said that the shortage of properties available for sale was responsible for shoring up prices in recent months, and that once people feel more confident about the market and out their homes up for sale the resulting increase in supply will actually push down prices.

She added: "Unemployment is likely to continue rising long after the recession ends. This will also put heavy downward pressure on average earnings, with the result that pay growth could tip into negative territory next year.

"Even if the economic outlook proves better than we expect, the housing market will not benefit. Interest rates would be raised, reducing affordability, while fiscal tightening will eat into households' disposable income. The upshot is that with the housing market still overvalued, prices are more likely to fall than to rise next year."