Despite some slightly better news from the housing market in recent weeks, we still expect 2009 to be a very difficult year and see little prospect of a significant improvement in the coming months. The economy is already in recession and is forecast to contract further over the first half of the year at least.
Council of Mortgage Lendewr, Press Release – 23 February 2009
Unemployment is set to rise further, with an inevitable impact on households’ ability to service debt. But, for some households who remain in employment, there will be significant benefits from lower interest rates.
It now seems certain that the Bank of England will step into unknown territory to try to cushion the economy from the worst effects of the financial crisis. It has also recognised that cutting the policy rate to record lows may have actually restricted the flow of credit to the wider economy.
There has been some evidence of a slightly less downbeat housing and mortgage market in the last few weeks. Estate agents have reported an increase in buyer activity and there has been conflicting evidence on house prices. However, with the funding position difficult and the impact of the weak economy working its way through, we do not expect a turn around in the coming months. Activity is likely to remain extremely subdued over most of this year.
Weak economy inevitably means more struggling to meet payments
The Bank of England and the IMF have forecast the economy to continue to contract over the first half of this year. The first quarter will see an especially sharp contraction as stocks are run down. This weakness is starting to feed through more markedly into unemployment, which several commentators have forecast to rise from two million at the end of 2008 to three million by the end of this year. It is inevitable that more borrowers will face difficulties in meeting the payment obligations.
Redundancy payments mean that not all fall into arrears immediately. But the longer people are out of a job, the more likely they are to be unable to meet payments. And the weak economy can hit household income, even when they remain in employment. Many will face a reduction in overtime. There will also be cases where people lose their job and have to accept a new position on a lower salary. Full Article