Cuts and effects on the Housing Market

It is possible that proposed government spending cuts, could reverse recent house price growth.

Firstly, the rise in house prices has taken many by surprise it has been based on weak fundamentals with only a limited rise in demand. A knock to economic growth could push back overvalued house prices.

The good news is that a recent forecast for UK growth by OBR suggested the UK economy will expand by just over 2% a year. This is not spectacular growth, but will help to maintain more stability and reduce unemployment. (Growth rates UK).

However, the concern is that a combination of fiscal austerity and a European wide recession could lead to lower growth in the UK and if things turned really bad we could have a double dip recession. It means that the prospects for interest rates are likely to remain at 0.5% for a considerable time. Despite inflation exceeding governments target, there is a need for a loose monetary policy to offset the fiscal deflation.

Prolonged low interest rates will continue to be good news for homeowners – presuming they can get access to cheap mortgages.