House price increase is just a blip before further declines, says Fitch

12 October 2009

Fitch Ratings has poured cold water on the recent gains recorded by the main house price indices, dismiss-ing them as a temporary respite from further price falls.

The ratings agency continues to forecast a peak-to-trough fall in prices of around 30% from their October 2007 peak.

At the moment Fitch says prices are down 13% from that peak, having sunk as low as 19% in March this year.

Alastair Bigley, head of UK residential mortgage-backed securities at Fitch, says: “Unemployment will peak next year and remain close to that level into 2011.

“This will inevitably weigh down house prices. The drag of rising unemployment and low wage inflation is yet to be significantly reflected in the level of prices.”

The agency points to data from Nationwide which shows that for a first-time buyer to buy a property at the average price of £162,000 they would need to put down £32,000 in cash as a deposit. The Office of National Statistics puts the typical pre-tax salary at £25,000.

Bigley adds: “Despite the fact that a global economic recovery is underway the economic fundamentals do not auger well for a sustained and strong recovery in the housing market.

“Although households are reducing debt and increasing savings the upfront cost of house purchase for first-time buyers is likely to stifle housing demand.”

But Gary Styles, strategy, risk and economics director at Home-track, does not entirely agree with Fitch’s view.

He says: “I understand the broad thrust of what Fitch is saying - that we shouldn’t be getting carried away with rising house prices - but I would not go so far as to say that we will see a significant correction next year.

“And anyway, I’m not sure affordability measures are a particularly good forecasting tool for prices.”