The bullish investor sees demand for raw materials outstripping supply for the next two decades. The ratings agency predicted that house prices in Britain would fall by around 30pc in total from the October 2007 peak, indicating that they have a further 17pc left to fall. The current average house price of £162,000 is 13pc lower than that peak, Fitch said. Rising unemployment, which will peak next year and remain at that level into 2011, as well as a low wage inflation and poor credit availability, will drag on house prices, the report said. “Despite the fact that a global economic recovery is under way, the economic fundamentals do not augur well for a sustained strong recovery in the UK housing market,” said Alastair Bigley at Fitch. Both Halifax and Nationwide have reported house price rises in recent months but Mr Bigley said they were being driven by a lack of supply in the market and cash-rich buyers, which was not sustainable. Fitch says the UK’s average house price-to-income ratio is likely to come down to below the long-term average, as it did during the early 1990s' recession. The ratio is currently “significantly higher” than the long-term average. “A 30pc fall from the peak of October 2007 would bring this ratio back in line with the long term average,” said Brian Coulton, head of global economics at Fitch. The report also warned that recent signs of easing in credit availability were only likely to be temporary. It said that as unemployment continued to rise, the rates of mortgage arrears and repossessions could rise, which would in turn prompt mortgage lenders to tighten lending criteria. Attractively priced funding with a loan-to-value (LTV) of more than 80pc remained scarce, Fitch said, pricing first-time buyers out of the market and stifling housing demand. Fitch calculated that a first-time buyer would have to find £32,000 in cash as a deposit to buy a house in the current market, more than the £25,000 average pre-tax salary in the UK. Lenders were also judging mortgage applications against a growing number of criteria, Fitch said, for example by declining loans where they see evidence of significant debt consolidation, regardless of whether the LTV and credit score were within policy. “An appropriate loan-to-value ratio alone is not enough to secure a loan. Lenders are increasingly judicious about whom they will lend to and as the effects of unemployment and possible rate rises in 2011 feed through to performance Fitch expects lenders’ risk appetite to remain reduced,” said Mr Bigley. The agency does not expect the UK economy to start growing again until next year. But not everyone is as downbeat as Fitch even though many analysts have reservations on the pace of recovery. Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite further likely gains in the very near term, we suspect that house prices will be prone to significant relapses and will probably be no more than flat overall between now and the end of 2010." Ray Boulger, senior technical manager at John Charcol, said: "I think during the next few months there is every indication that prices are going to keep rising."Commodities boom could last 20 years, says Jim Rogers
House prices 'have further 17pc to fall'
The recent rises in house prices will prove to be a false dawn because of the broader problems facing the British economy, Fitch Ratings said yesterday.
Sunday 11 October 2009
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