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The Sterling Crisis: Estate agents carry on twiddling their thumbs: The housing market: Hopes of a housing market revival are rising with predictions of a cut in interest rates. Yet still there is uncertainty. David Lawson reports

GREG PULLEN sat and watched the baker next door do a steady trade over the last few days. Like most estate agents, he had little else to distract him. In times of uncertainty people still buy bread - but they do not buy houses.

Suggestions that interest rates may plummet as a result of this week's financial turmoil has sparked hopes that buyers may flood back and rescue the property market. But no one is taking bets because there is still so much confusion about whether this will happen.

In any case, high interest rates are not the sole reason why housebuying has halved in the last two years. 'We had three deals go through on Tuesday when rates were soaring,' said Mr Pullen, of Dreweatt Neate, in Wootton Bassett, Wiltshire. But they were all on cheap loans with rates fixed for the next few years.

People do not know what the future holds, so they are staying put. You cannot blame them when even the Government and high-flying economic commentators are reading from cracked crystal balls. We were due a housing revival in 1991; then we were definitely going to have one after the election. Now the picture is so cloudy that no one could confidently predict what would happen next.

There are plenty more cheap mortgages available to attract buyers - in fact it is hard to find a 'normal' one nowadays. But other fears keep people rooted to the spot. Fear of unemployment is one. The jobless figures soared again this week. But then there were plenty of buyers around in the 1980s when mortgage costs and unemployment rates were just as high.

The crucial factor is whether things are getting better or worse. 'When people see jobless rates coming down again they will feel safer about taking out a big loan,' Mr Pullen said. The same applies to confidence about interest rates.

He might also add that buying will look a lot more attractive when prices stop falling. The 100 per cent mortgage has all but died because of huge losses from unbridled lending during the boom, and six months of price falls will wipe out a hard- saved 5 per cent deposit.

So what does happen next? The next milestone is the French referendum on Maastricht tomorrow. The man in the street may not understand exactly what is going on but he accepts media pronouncements that this is one more huge uncertainty. That is why Mr Pullen has also had deals frozen while buyers wait until next week.

If the vote is negative and more turmoil breaks out, we might be looking at another big fall in property prices. It does not matter whether buyers are on the streets, as hardly anyone will want to sell. The only homes on the market will be the result of repossessions, divorce settlements and inherited homes - all likely to see prices cut savagely. That will drag down the value of the few conventional properties for sale.

Ironically, the market may avoid 'meltdown' purely because the Government's economic policies fail. Higher wage inflation will help to reduce the debts currently locking one million people in homes worth less than their mortgage.

Falling interest rates would not only produce the confidence to take on new debts but may also produce the two consecutive drops in unemployment figures everyone is waiting for.

Once prices hit bottom, a whole new set of rules apply. Pent-up demand from those who put off deals could send values bouncing upwards - if only for a short time. That will bring out the buyers in droves.

But who knows? Ordinary people do not. And until they start believing things are on the mend, estate agents will be left twiddling their thumbs and envying bakers' queues.