Housing market to stall in 2011, thinktank warns

Britain's housing market is set to grind to a halt this year as worried consumers think twice before moving house and banks continue to be wary about lending, according to the Centre for Economics and Business Research. The CEBR economists said that after year-on-year growth of 6.4% in 2010, the housing market recovery would stall in 2011, leaving house prices 1.7% lower by the end of the year. The decline could be good news for first-time buyers if they can come up with the large deposits now required by most lenders. The thinktank believes affordability for first-time buyers will reach an 8-year high this year thanks to low mortgage rates and weakening house price growth. First-time buyers are expected to spend a quarter of their disposable incomes, on average, on mortgage payments. The CEBR's chief executive Douglas McWilliams said: "We expect house prices to grow tentatively over the coming years, given that household incomes are being squeezed and banks are still wary of lending. There is currently significant uncertainty in the market caused by the government's spending cuts and a choppy recovery, which has greatly impacted transaction levels." The thinktank said rising unemployment and anaemic growth in take-home pay would drag down demand for housing and bring down prices, particularly in regions most vulnerable to austerity cuts such as northern England. Bank of England governor Mervyn King recently warned that families faced the worst squeeze on their spending power since the 1920s, with inflation-adjusted wages falling over the last six years. House price growth is set to resume, but at a slow pace from 2012 as banks' lending criteria are relaxed and consumer confidence recovers. Shehan Mohamed, the report's author and economist at CEBR, said lower consumer confidence would rein in demand for mortgages, which will average around 50,000 per month – still around 50% lower than pre-credit crunch levels.