That’s the sober conclusion of the accountants' latest Economic Outlook report, which predicts a 70% chance that property prices will remain lower than their 2007 peak in 2015 and a 50% chance that they will still not have reached that level by 2020.
The snapshot data from bank and building society surveys certainly seems to suggest the brisk rate of house price growth seen since spring last year has ground to a halt, with flat or even falling prices now the order of the day.
And the FSA report into mortgage affordability out this morning certainly isn’t going to bring any good news to those who would like to see house prices resume the relentless upward climb that has been the norm for most of the past 30 years.
The City watchdog has come up with some frankly alarming findings on the current state of UK mortgages, most notably that over 50% of mortgages issued between 2005 and 2008 were on a ‘non-income verified’ (aka self-certified) basis and that 46% of all households with a mortgage had no money left at the end of each month. That’s in 2008, remember, before the crash had even happened…
As a result, it’s suggesting what amounts to a ban on self-cert mortgages, which allow people to in effect claim whatever income they like and then borrow against it.
The FSA's wheeze seems eminently sensible to us – it’s in no one’s interest for people to take out mortgages they can’t afford. But it’s not going down well with lenders, which claim that all the pesky admin associated with checking out what people really earn instead of what they say they do will put their costs up. Poor lambs.
Perhaps someone (preferably from an industry which doesn’t rely on vast taxpayer bailouts when things go wrong) should acquaint these lenders with the concept of due diligence, where you spend a little money upfront in order not to lose a lot later on.
But even if the house price predictions are true – and, given the track record of economic forecasting, that’s a big ‘if’ – is it really such bad news?
Well, that depends – and not only on whether you are a homeowner or not. If it makes houses more affordable for young people at the expense of their older, richer parents, that doesn’t sound unreasonable to us. It could even – whisper it – lead to a structural change in the UK economy, by freeing up some of the 39% of individual wealth which is currently sunk in property for investment in something more socially useful. Like buying shares in Goldman Sachs.
Maybe. But here at MT we fear that the real outcome is likely to be more painful and less utopian. The UK housing market is not, as headline stats suggest, homogeneous. Regional differences are already large, and as public spending cuts bite and the economy becomes even more skewed towards the south-east, these disparities will become ever starker.
So that ‘no growth in a decade’ soundbite could translate into pretty steep growth in the south-east coupled to severe price deflation in many less economically active areas. It’s being so cheerful what keeps us going.
In today's bulletin:
Real house price growth to take a decade?
Retail sales boosted by warm weather - and sun shines on Burberry
China strips imperialist Western oppressors of AAA credit rating
DIY apps: Google's secret weapon in the battle of the smartphones
Wanna start an F1 team? That'll be £16m to you, squire