The Englishman's home looks immune to global downturn

Despite dire warnings, bricks and mortar continue to buck the economic trend, but cracks may be showing
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Are sunbathing and edge-of-your-seat cup-final matches valid reasons for a slowdown in the housing market?

Are sunbathing and edge-of-your-seat cup-final matches valid reasons for a slowdown in the housing market? According to Bradford & Bingley the answer could be yes.

In a report released today, the high street bank says houses are taking a fortnight longer to sell than a year ago and puts the delay down to hot weather and the end of the football season.

Perhaps it is no surprise people are searching for explanations about the state of the market when the authorities do not seem to have a firm idea.

The Monetary Policy Committee, chaired by the Bank's Governor, Sir Edward George, yesterday warned specifically that with consumer demand strong and mortgage rates low, there could be a "house price boom", while Chesterton's, one of the UK's most prestigious estate agents, said it had suffered a shock fall in sales thanks to "uncertainty" in the London mid to high-price market.

Halifax and Nationwide, the two major players in the mortgage industry, believe it is "steady as she goes" for the housing market with little risk of either a boom or a bust. The latest figures from Nationwide, the UK's largest building society, show that prices rose 0.8 per cent in May taking the gain so far this year to 5 per cent. Halifax, the largest residential mortgage lender, said prices jumped 1.5 per cent or £1,000 on average in May. This was the fifth month of price rises in a row.

This remarkable performance was achieved in the face of dire warnings that a combination of a global economic slowdown, falling share prices, redundancies in the City and foot-and-mouth disease would knock the stuffing out of the market.

The latest figures for June from the lenders and the estate agents are published next week and there is no reason why there should have been a slowdown in growth.

Fergus Hicks, an economist at the Royal Institution of Chartered Surveyors (Rics), said homebuyers had not been affected by the change on the global economic outlook. "Since the start of the year the market has picked up," he said. "Demand has been fairly buoyant, the domestic economy has remained fairly strong and consumer confidence has held up quite well."

In particular he said the market had responded to the three cuts in interest rates ordered by the Bank of England to counter a threat of recession. In terms of the housing market, it certainly worked.

Simon Rubinsohn, chief economist at Gerrard fund managers in the City, said in the current competitive lending market low interest rates meant very low mortgage rates. "The proportion of income that has to be employed to service mortgage debt is still historically low, so I still buy the affordability argument," he said.

Meanwhile there are more people in work than at any time since records began and these people are seeing their pay rise at more than twice the rate of inflation. In addition, there is a shortage of property – both of homes on the market now, and of newly built properties coming on the market.

The lack of sellers is certainly having an effect, according to the Rics. Mr Hicks said: "It would seem there is an element of supply outstripping demand." Estate agents in parts of London are describing the market as "madder than at any time since the 1980s" with hordes of buyers circling round the few homes on the market.

In the longer term, a lack of supply is likely to support rising prices. Official figures show the number of housing starts has fallen since last autumn, despite housebuilders reporting a sharp rise in the number of buyers.

Meanwhile, the number of households with just one person is likely to increase. The Department of the Environment forecasts that by 2016 more than a third of Britons will live on their own. Halifax said this meant the growth in the number of households, forecast at 0.7 per cent over the 20 years to 2016, would outstrip the 0.3 per cent rise in the population.

Despite this rosy scenario, many observers do see a risk that house price inflation will fall or even – in certain areas – go negative. The warning from Chesterton's, that it had seen a sharp drop in transactions in its London business in May and June, took the industry by surprise. Michael Holmes, the chief executive, told the City that sales of £1m-plus properties had "stopped dead".

Alex Bannister, chief economist at Nationwide, said he expected that its regional data published next week would show a rise between first and second quarters of the year in London.

But Gerrard's Mr Rubinsohn said a fall in London house prices should not come as a surprise. "If we do see a shake-out in the financial services industry that would rapidly feed into the property market," he said. "I am sure that this is happening but it is not being publicised by the firms. But the anecdotal evidence is suggesting it is happening." He said the reversal of fortunes for US financial companies as merger and flotation activity dried up would feed through to job losses, lower bonuses and falling share prices.

Gerrard forecasts that if the FTSE All-share index, currently at about 2,700, fell below 2,500 and stayed there for the rest of the year London prices could fall as much as 5 per cent. "Although this would only affect London initially, and perhaps just the top end of the market, it could ripple out to the rest of the South-east. It isn't just a London effect – that's the risk," he said.

But at Nationwide, which forecasts growth of 7 per cent this year, Mr Bannister said he saw little risk of a sharp slide in prices. "It is certainly true that we expect the economy to slow as companies pull back on investment and we may see more lay-offs," he said. "We certainly would not expect a surge in prices from here on in but we expect the recent pace of annual price growth to be maintained."