Proposed government spending cuts, could reverse recent house price growth.
Firstly, the rise in house prices has taken many by surprise it has been based on weak fundamentals with only a limited rise in demand. A knock to economic growth could push back overvalued house prices.
The good news is that a recent forecast for UK growth by OBR suggested the UK will expand by just over 2% a year. This is not spectacular growth, but, will help to maintain more stability and reduce unemployment. (Growth rates UK)
However, the concern is that a combination of fiscal austerity and a European wide recession could lead to lower growth in the UK and if things turned really bad we could have a double dip recession.
It means that the prospects for interest rates are likely to remain at 0.5% for a considerable time. Despite inflation exceeding governments target, there is a need for a loose monetary policy to offset the fiscal deflation. Prolonged low interest rates will continue to be good news for homeowners – presuming they can get access to cheap mortgages.
Our view is that falling house prices would result in another recession which would mean falling tax revenues and further taxpayer bailouts of UK banks. That would make our national debt even harder, if not impossible, to service. The UK therefore has to have rising house prices to keep paying the country’s debts – and the government will do what it can to make sure it happens. Betting on falling house prices is like betting that the UK government doesn’t have the power to keep them rising.
People got ahead and went mad buying all these houses in the 1st place . Ireland for example and now irish people just cannot secure loans or mortgages but there is alot more to the issue than falling house prices