No need to panic before we know full story on cuts

18 October 2010

As the leaves start to fall from the trees, October can be one of the more beautiful months of the year. But this year, October is full of foreboding as the long-awaited and much-feared Spending Review is due to be unveiled this Wednesday.

We have already had a taster - child benefit removed from families with higher-rate taxpayers and talk of public sector workers having to work longer and pay more for their pensions.

Apparently, the news is going to Osborne is going to phase the cuts in over four years. To say that most of the nation is fearful would be an understatement.

There has already been doom and gloom on the housing front, with Halifax’s September house price index showing that prices slipped by 3.6% during the month.

This sounds bad enough until it is translated into real money - more than £6,000 was wiped off the value of the average property, the biggest monthly fall since 1983. Inevitably, talk of sustained house price falls and double-dip recessions has followed.

But it is important not to get too carried away. For one thing, it is always worth looking at the smoother quarterly figure for house price movements rather than a single month in isolation - there was a less scary 0.9% fall in Q3 compared with Q2.

Making assumptions about sustained house price falls and double-dip recessions is unhelpful and premature

This tends to paint a truer picture than one month in isolation. Secondly, the usefulness of an average house price should always be questioned as it masks significant regional variations.

In some areas, prices continue to rise rather than fall, so talk of a falling average is irrelevant.

But I can’t say I am that surprised by the fall in September. Given the backdrop of economic uncertainty and cutbacks, does this shock anyone?

We already know how difficult it is to get a mortgage unless borrowers have a hefty deposit and squeaky clean credit history, while the numbers are distorted by the low number of properties on the market.

But that aside, which sane person would buy a house now if they are seriously worried about losing their job?

Surely it makes sense to at least hang on and find out how bad it could possibly get before making such a monumental decision.

Some people have to move and for them there are bargains to be had if they can get the mortgage finance they need.

Others don’t have to move but would like to, so they can sit on their hands for a while longer until the situation becomes clearer and we have a better idea how bad things are going to get.

Come Wednesday, we’ll know more about all this.

But making assumptions about sustained house price falls and double-dip recessions in the meantime is unhelpful and premature.

It will cause panic where it may not be necessary.

et 10-day cooling-off period for all mortgage contracts will not come to fruition.

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