UK 'dependent' on property market

The UK will be "heavily dependent" on the property market this year, with one million house transactions set to offset continued eurozone woes.

The Ernst & Young Item Club's spring forecast warns that the UK will have to wait until 2015 before exports start contributing positively to growth.%VIRTUAL-SkimlinksPromo%
It expects GDP to expand by just 0.6% this year and that, with the rebalancing of the economy on hold, the UK will again have to rely on the consumer.

This year's forecast 7.5% rise in housing transactions comes as mortgage costs start to fall due to the Government and Bank of England's Funding for Lending scheme. And in last month's budget, Chancellor George Osborne announced plans to underwrite £130 billion of mortgages from next year.
Item's chief economic adviser Peter Spencer pointed out that real incomes were starting to recover, with mortgages becoming more readily available and homes more affordable as the prices to earnings ratio continues to fall.

He said: "Although it's not a long term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth."

The Chancellor's increase in personal income tax allowances is also expected to add 0.4% to disposable incomes over the next two years, Item said.

Mr Spencer added: "We should start to feel slightly better off this year, which will help to loosen the purse strings. Consumer spending added 0.7 percentage points to GDP in 2012 and the Chancellor's Budget will help ensure the tills continue to ring for some time yet."

House prices should rise 2.1% in 2014 and by 5% the following year, but Mr Spencer said he did not think the initiatives will create another housing market bubble.

Mr Spencer said the Chancellor's Help to Buy scheme had the potential to get people moving again, easing the problem of long mortgage chains.

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Factors damaging property value
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UK 'dependent' on property market

Pre-recession, homeowners would give little thought to the idea that local repossessions could affect the value of their home. 101 repossessions were recorded every day during the third quarter of 2011 and it has become a real concern.

A new crime map introduced in March 2011 was welcomed by buyers, but approached with trepidation by homeowners concerned about the impact on local property values. The map allows users to view crime statistics online by postcode to find out the crime rates and types of crime in any area.

It is widely recognized that schools with a good reputation increase competition and property demand within a local area, which in turn increases the values of property within the catchment area. Lose the school and the demand will cease too.

The devastation caused by flooding in recent years doesn't appear to paint a positive picture for homeowners faced with the financial and emotion cost of a huge clean up, insurance complications and the potential damaging effect on property values.

The proposed high speed rail link is depressing house prices for thousands of homeowners on the route and many homeowners feel helpless to stop tumbling property values.

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