While the signs are that the UK housing market is under pressure, house prices have not yet shown the marked fall which many experts had been predicting, so what can we expect in the short to medium term?

The situation we are seeing in the UK property market is very much similar to that in the early days of the credit crunch, whereby many so called experts are breathing a sigh of relief that we have not seen a collapse. However, as we all know now the credit crunch has come back to haunt the worldwide economy with a substantial slowdown in worldwide industry expected in the short to medium term. The situation with the UK housing market will be similar because of a number of factors which include :-

Lack Of Funding

Many banks and other financial institutions have been forced to curtail the agreement of new mortgages after experiencing funding difficulties in the wake of the credit crunch. There is no short term solution to the problem because central to the problem is the fall in the value of core investments held by many institutions, which historically they had used as collateral for extended finance.

Economic Slowdown

As corporate UK continues to struggle from the slowdown in the worldwide economy, more and more companies will be looking to reduce their costs as profit expectations are slashed for the short to medium term. At some stage cost savings will mean job cuts which will mean less money in the pocket of consumers, which will again filter through into the economy and depress corporate profits yet further.

Inflation

While the Bank of England has full control over the future direction of bank interest rates there is great concern over the recent rise in inflation. The government’s upper band will be breached over the next 12 months with many expecting inflation to rise to more than 3%, which seriously undermines the ability of the Bank of England to slash interest rates as they have done in the US.

Consumer Confidence

Even though historically the UK consumer has been fairly upbeat we are starting to see signs of concern as the taxation policy of the current UK government starts to bite and people are actually beginning to feel the pinch. The impact of higher petrol prices has also had a knock on the affect to the UK economy where extra transport costs have been passed onto the consumer through the higher price of goods, eating away at the income of the UK consumer even more.

Unfortunately for the UK consumer there is no quick fix solution to the problems which we are experiencing now and set to encounter in the short to medium term because a sharp reduction in interest rates has the potential to push inflation higher, thereby affecting the long term performance of the economy. This lack of consumer financial strength will see less demand for houses and more home owners experiencing financial difficulties. Cut price sales will appear in time which will further reduce the strength of the overall market with the potential to see a serious sell off in due course. Buyers who have or can arrange funding are most certainly in a position of great strength, but probably in no rush to buy!