EYE OF THE STORM

The British property market appears to be staging a recovery. Don't be fooled. Savills says prices in prime central London rose 4.3 per cent in the second quarter. Hometrack says prices nationally held steady at 0 per cent rise/fall for the second month running in June. And Your Move says rents rose 1 per cent in June.

However, this may only be the eye of the storm, because as the recession and banking crisis recede, so huge public spending cuts and tax rises needed to pay off the national debt loom large on the horizon - these storm winds will most likely whip up sometime after the next general election which must be held within the next nine months.

Whichever political party wins that election, they will have to make thousands of public sector employees redudant and all of us pay more tax. Both of those things mean less money in the economy which means less money available for spending on housing. There's little chance big home loans will make up the difference, because banks are likely to remain reticent about lending on a massive scale for a long time yet.

In any case, the house prices to earnings ratio, currently at about 5, is still too high says consultancy, Capital Economics, so prices will fall 10 per cent this year, 5 per cent in 2010 and 5 per cent in 2011 until the long term average of 3.7 is reached. Either that or earnings must rise substantially and there is little sign of that happening.

(All The World's a Home : Global Property News)