Global credit crunch to hit UK housing market

The UK housing market is poised to become a casualty of the global credit crunch, with house prices forecast to mark the lowest annual growth since the mid-1990s.

In its latest Regional Planning report, Experian forecasts that housing markets in the South West and Midlands will see the steepest price corrections.

The expected slowdown takes place against a background of five interest rate hikes since mid-2006, coupled with the impact of the credit crunch, sparked by rising defaults in the US sub-prime mortgage market.

'We expect the UK housing market to suffer over the next two years,' said Andrew Burrell at Experian. 'Although national house prices have continued to soar against a background of higher interest rates, the current boom has been uneven regionally. The latest figures show an exceptionally buoyant market in Northern Ireland and continued strength in Scotland and London, but elsewhere there are already signs of deceleration.

'Over the next two years, house prices are forecast to record the lowest annual increase since the mid-1990s. The regional impact is uneven. Modest declines in house prices are predicted in the south-east and the east, while values fall much more sharply in the south-west. By contrast, Greater London, where overvaluation is less severe than in the rest of the south, has the UK's strongest short-term outlook after Scotland.'

Winners and losers in the housing market do not fit a strict north-south pattern. This in part reflects more evenly balanced economic performance across the country. In the recent upturn, activity shifted to the Greater South East (GSE) as the decline in manufacturing left the north more reliant on the slowing public sector, while global influences, notably in international finance and the City, stimulated a boom in southern growth.

But with the credit crunch set to hurt international demand and with the financial sector hit hardest by this, the south will fare less well in the short-term. Growth rates remain higher than in the northern economies, but the divide of 2005-07 is greatly reduced and the north-south gap also remains more modest in the longer term.

Overall the UK GDP growth is set to slow from 3.1 per cent this year to 2.1 per cent in 2008. Consumer demand will see a particularly sharp downturn, growing by less than 2.0 per cent year-on-year, with only significant reductions in interest rates helping to fuel an upturn in 2009.

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