The International Monetary Fund dashed hopes yesterday of a quick fix for the British economy, saying the country faces two years of economic pain. The IMF believes UK growth will be 1.4 per cent, down from the 1.7 per cent that was predicted in spring. Next year it estimates growth will be weaker still at 1.1 per cent, compared to Alistair Darling’s projected 2.25 per cent. The IMF said Britain’s woes were worsened by the slump in the housing market, and it estimated house prices will fall by 15 per cent in the next two years.
Despite these predictions, the IMF cautioned that soaring inflation leaves the Bank of England little scope to cut interest rates from 5 per cent. Most evidence is pointing to the annual consumer price inflation rate increasing to more than 4 per cent when July’s figures are released next week, which has had a major impact on the BoE’s monetary policy committee decision today, as interest rates are kept on hold at 5 per cent.
A growing number of critics are coming out against the government’s line on stamp duty. Estate agents and surveyors have told the chancellor that house sales could collapse during the summer because of uncertainty about a temporary freeze in the duty. The Tories have written to Mr Darling accusing him of playing ‘damaging short-term games’ with homebuyers. But in the 1990s, when there was a stamp duty holiday, the positive effects were short-lived.
Halifax house price index figures released today show a fall of 1.7 per cent in July, bringing house prices down by 8.8 per cent in the past year. The monthly drop was smaller than the previous two months, but was slightly higher than estimates. A spokesperson for Halifax said that the housing market was underpinned by a solid employment market and low interest rates, but was being constrained by the decline in credit availability.
Meanwhile the Scottish housing market is heading for its worst ever period of recession, and this will stop the government from meeting its housebuilding targets, according to Homes for Scotland, the industry body. Around 15,000 jobs have been lost across the industry in the past three months, and it estimates that 50 per cent fewer homes are being built than last year. Homes for Scotland told the government that the dramatic reduction will make the target of building 30,000 new housing association homes for rent impossible to meet.
For homeowners, location was still the ‘key’ to their purchase. Almost two-thirds of new buyers quizzed (by property developer Investland) said that the location of their home was more important than interior design, transport links and parking. Of next importance was the size of the house.
And finally, first-time buyers are getting older. Research from mform.co.uk, a consumer website, has found that just 34.5 per cent of all first-time buyers in 2015 are under 30 compared with nearly 50 per cent during 2014. The average amount borrowed has also increased from £117,000 last year to £127,000 this year. First-time buyers now need an average income of £41,600 compared with £34,000 last year, despite recent house price falls.