Ernst & Young Says UK Property Sector Will Decline Further

The latest report published by the Ernst & Young Item Club – the company’s forecast group – on Monday, September 14th, suggests that company’s experts are not positive about the future of the UK property market.

In their opinion, the decline in the UK property sector will be seen in the year of 2010 unless mortgage lending, which is now scarce, improves.
It has to be said that the Ernst & Young Item Club is the only forecast group in Great Britain that uses the same economic model as the UK Treasury does; therefore, company’s forecasts can be and should be trusted. The research, based on that model, showed that house prices will see another decline in the first 6 months of 2010, which fact will lead to further stagnation of the UK property sector.
Let us remind that the economic recession resulted in a 15% decrease in UK property prices as they fell from their peak, which started in 2006 due to shortage of supply and continued through 2007. Such a sharp decline left a large number of British homeowners in negative equity.
According to the Item Club’s forecast, mortgage lending is unlikely to improve as banks are expected to rebuild their balance sheets.
One of the leading world’s economists, Ms. Hetal Mehta, who is currently employed as a senior advisor to the Ernst & Young Item Club, says that the improvement in the UK property sector, which can now be noticed, is false. In her opinion, the latest increases in house prices should be explained not by UK property market recovery, but rather by shortage of properties available for sale. She adds that many people are unwilling to sell their houses either because they are stuck in negative equity or because they are still waiting for the prices to go up.
However, Item Club’s experts say that they will not be surprised by increasing UK property prices as their rise is being prompted by low supply of properties (according to the organisation’s data, the Government’s plan of construction of 240,000 houses this year is already behind the schedule).
If the situation in the UK property sector remains as it is now, house prices will not recover to the level seen in 2007 for as long as 5 years, the Ernst & Young Item Club warns.