They won't blow our house prices down

Are we heading for a crash?

Melanie Bien
Friday 19 July 2013 04:29

Fears of an imminent crash in the housing market have been widely dismissed by UK experts, even though the International Monetary Fund (IMF) - one of the world's most respected financial organisations - is warning it could happen.

In its World Economic Outlook Report, published last week, the Washington-based IMF states that while a slowdown in the housing market should remain "manageable", it can't rule out a collapse.

For UK homeowners, already struggling to cope with rising interest rates and mortgage repayments, this is worrying news. But before they start to panic, they should bear in mind that the picture may not be as bleak as it's been painted. And those eager to get on the property ladder for the first time, and hoping a price crash will give them a leg-up, might have to put the celebrations on hold for now.

Economists have been predicting a soft landing for the housing market for the past few months. The IMF's comments appear to have done nothing to change their minds.

The National Association of Estate Agents (NAEA) even goes so far as to say that the IMF has got it "badly wrong".

"For a number of very good reasons we believe the IMF is needlessly flying a kite and scaring homeowners," says Peter Bolton King, chief executive of the NAEA. "They cite increasing interest rates as a reason for precipitating a crash. But opinion is that if rates go up at all, it will be by just 0.25 per cent in November [to 5 per cent] and that will be the peak."

None of the key surveys published in the past few days mentions the possibility of a crash in the housing market. The Council of Mortgage Lenders (CML), British Bankers' Association, Building Societies Association and Royal Institution of Chartered Surveyors (Rics) all point to a much-needed and long-expected slowdown in the market.

The general feeling seems to be that price rises have become unsustainable but that doesn't mean there will be a slump.

Also, money market rates - which determine fixed-rate pricing - have already come down in anticipation that the cost of borrowing has reached its peak. Fixed-rate mortgage deals, which have been expensive in recent months, are starting to fall once more and are looking increasingly attractive.

"Long-term interest rates, which affect fixed-rate mortgages, have actually come down to 4.8 per cent, which means that the money markets believe inflation a year or two from now will be under control," adds the NAEA's Mr Bolton King. "We also believe the IMF has not taken into account the desperate shortage of new housing in the UK.

"Unemployment is at historically low levels and there is no sign of any significant numbers of people losing their jobs."

In its latest housing market survey, Rics found an overall decline in prices for the first time in more than a year. "Prospective buyers have taken heed of rising borrowing costs and warnings from the Bank of England, though there are few signs that a significant market downturn is around the corner," concludes the report.

"Some speculation in the housing market is quite gloomy at the moment," says Ian Perry, national housing spokesman at Rics. "However, we are confident that a prolonged slide in prices will be avoided, underpinned by the strength of the economy and good employment prospects."

Figures from the CML reveal that the number of people buying a new home fell by 20 per cent in August from July.

Michael Coogan, the CML director general, warns there may be a "bumpy pattern rather than a smooth slowdown" ahead, but "all the evidence so far points to an orderly soft landing, in line with our expectations".

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