UK House Price Gains Are Only Temporary: Fitch

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Fitch Ratings said in a report Wednesday that the recent gains in the UK house prices are likely to provide only a temporary respite and expects house prices to fall from its peak seen in October 2007.

The rating agency forecasts house prices to fall 30% overall from its peak in October 2007, with the prices being currently 13% below that peak, having dipped 19% in the first quarter. The fall would bring it in line with the long-term average, Fitch said.

Brian Coulton, head of Global Economics At Fitch Ratings, noted that UK's average house prices to income ratio remained significantly higher than the long term average, in contrast to the recession in the 1990s, when the house price to income ratio fell below the long term trend.

Alastair Bigley, Head of UK office of Fitch Ratings said, "The drag of rising unemployment and low wage inflation is yet to be significantly reflected in house prices. Unemployment will peak next year and remain close to that high into 2011; this will inevitably weigh on house prices."

"Despite the fact that a global economic recovery is underway, the economic fundamentals do not auger well for a sustained strong recovery in the UK housing market," he said. "Although households are reducing debt and increasing savings, the upfront cost of house purchase for first time buyers is likely to stifle housing demand."

Fitch also pointed out that credit availability could be a temporary phenomena as it expects the lending appetite to be pro-cyclical to the performance of house prices and the credit performance of the underlying borrowers. Meanwhile, the rating agency forecasts UK GDP to turn positive next year and continue to grow well into 2011. However, it expects unemployment to rise well into the next year.

(Market News Provided by RTTNews)