Tuesday, February 1, 2011

UK property market is weakening

Recently, there have been a string of new numbers pointing to a weakening UK property market. The latest was mortgage approvals. On a seasonally adjusted basis, approvals in December fell. Year on year, the flow of new credit to the housing market is down about £2 billion. That is a big number. In December 2009, monthly mortgage approvals were running at £8 billion; in December 2010, the number was just £6 billion.

Banks are again tightening credit. A new and more gentle credit crunch seems to be underway. It is less dramatic that the post-Lehman crunch. Nevertheless, it points to a further near term weakening of property prices.


  1. It's not banks tightening credit. It's that borrowers, in aggregate, are not willing to leverage-up.

    And de-leveraging may not be gentle. Austerity, GDP shrinkage, rising unemployment and a double-dip recession could lead to a property price crash in the UK.

  2. Barry,

    On the latter point, you are right. Property prices are slipping again.

    On GDP, I think the UK will avoid a double dip. Europe is recovering, sterling has depreciated, and exports are likely to pick up. Q1 will be strong.

    Unemployment has stabilised. I expect it to start to fall later this year.

    Credit is tightening, but companies are also quite liquid. I don't expect any constraint on investment demand, at least in the short run.