UK Slipping Towards Recession

by : Andrew Regan

The UK risks slipping into recession in the next two years, according to authors of the Deloitte Economic Review; and even if that gloomy forecast doesn't transpire, the best we can hope for is the weakest economic growth in the last 15 years.

The bad news for anyone with a sizeable mortgage is that the housing market is predicted to be hit hard. Due to the impact of the global credit squeeze the report authors claim that borrowing will become ever more difficult and that house prices are expected to fall by a whopping five per cent during 2008. And if that isn't bad enough news for homeowners, Roger Bootle - Deloitte's economic advisor - is predicting a further fall of 8% in house prices in 2009.

As a result many financial experts are clamouring for the Bank of England to cut interest rates immediately in an effort to stave off the predicted slump. Even Monetary Policy Committee (MCP) member David Blanchflower, who cast the only vote for an interest rate cut in January, has been quoted as saying that the overall health of the housing market is 'worrying'.

Apart from the adverse effect on the housing market, jobs are also expected to be a casualty of the impending slowdown come recession. Credit reference agency Experian is predicting a 20,000 reduction in London's financial services jobs over the next 18 months, representing a cull of one in 20 of the existing workforce.

And the days of cheap, easy credit have come to an end and with it the days of applicants being able to compare mortgages and choose the one that suits best. In the future lending criteria will be incredibly tough and UK mortgages will be hard to get for anyone who hasn't got both a sizable deposit and a good credit rating.

However, the silver lining for borrowers is that the UK base rate is predicted to drop to 4% in 2009 as the Bank of England attempts to stage a recovery in the market. That anticipated action would re-start the housing market, particularly attracting those who invest in the buy-to-let market.

Currently, buy-to-let mortgages are much harder to get than a year ago, as financial institutions seek to restrict risky lending; but established investors with high levels of equity, who are considered a good risk, may well return to the market if interest rates return to 4% and they feel prices would recover. That in turn would reverse the dropping prices, and hopefully lead to a wider economic recovery.