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Funding shortage divides the market


From a distance the housing market looks rosy – rising prices, increased sales, low interest rates and more consumer optimism.

But look closer and you see artificial demand created partly by a shortage of mortgage funding and the inability of many to move up the ladder or even get on it.

Buyers active in the market are those less reliant on mortgage finance. And they are getting choosy as big deposits tend to create big expectations. This is driving demand where the best homes are in short supply.

A two-tier market is developing whereby foreign investors and equity-rich buyers in the South-East and London take advantage of low interest rates to boost activity in prime locations.

Supply and demand are more balanced elsewhere as owners hang on to historically low standard rate mortgages to ride out the storm.

This is all relatively bearable for established home owners, assuming they can afford their repayments. But the prospects for those who have never owned are bleaker. Although a steady rental market may keep yields attractive in the buy-to-let sector a shortage of finance will again restrict activity to cash-rich investors.

So the smart money is on a dip followed by a slight rise this year, but experts are divided on whether prices will rise or fall overall in 2010, with variables including the election looming over the market.

A housing recovery is unlikely if the sector is denied the stimulus of an active first-time buyer market underpinned by affordable mortgage funding.



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