Housing market faces lost decade as upturn runs out of steam

Britain's homeowners must brace themselves for 10 years of stagnation, as last year's recovery in the property market gives way to a decade of drift, experts warn. Following news that the number of new mortgages approved fell in January, and house prices declined last month on both the Halifax and Nationwide measures, analysts believe the upturn in the second half of last year has run out of steam. "At best, it could be a decade of flat to slightly falling prices," says Danny Gabay, a former Bank of England economist and director of consultancy Fathom. He predicts a 5% fall in prices this year, and a 10% decline in 2011. City betting on property prices shows investors believe prices will struggle to rise in real terms for at least 10 years. By the end of 2012 prices will be just 3% higher, according to the Tradition Property Futures Index, which is based on the Halifax price index. After 10 years the price of the average home, now £165,997, will be only 22% higher than today. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said he expected prices to increase by just 1 to 2% in 2010, with worse to come. "2011 could be an altogether more challenging year: it wouldn't surprise me if prices slipped back a bit more." He added that the housing bounce late last year was concentrated in the south. "It was more London and south-east than Yorkshire and Humberside or the north," he said. "London and the south-east are benefiting from overseas buyers, and the City coming back to life." David Kern, chief economist of the British Chambers of Commerce, said after many years when double-digit price rises brought bumper windfalls, and thousands of people relied on property to fund their retirement, homeowners will have to change their attitude. "I look at it to some extent as a cultural shift. People have to get used to a different situation: it's a healthier housing market," he said. "If you had prices exploding again, we would be back to a crisis pretty soon." The BCC publishes its quarterly forecast for the wider UK economy today, and cautions that although it does not expect a "double dip", recovery from the deepest recession since the second world war will be slow and painful. "The obstacles to recovery are pretty big: the stimulus is going to be withdrawn; there will have to be a fiscal tightening; the banking sector will have to be recapitalised; and the personal sector will be cutting down its debts," said Kern. Ray Boulger, chief analyst at mortgage broker John Charcol, said a logjam was preventing a return to property boom and bust. He estimates that 3.5 million of the 10 million residential mortgage-holders have been left unable to move house, following the collapse in prices in 2007 and 2008 and restrictions on lending by cash-strapped banks. Last year, the Council of Mortgage Lenders estimated that 1 million households were in negative equity. Boulger believes another 1 million are unable to buy because they lack the 15% of equity needed to fund a transaction in today's tough mortgage market, while 1.5 million homeowners are stuck with self-certified or other never-to-be-repeated mortgages that could restrict their ability to sell for years to come. House prices fell sharply in 2008 and early 2009, but had made up much of the lost ground by the end of last year, to the surprise of many analysts. "I think we had an unusual market last year: supply was very tight because people were reluctant to put their properties up for sale," said Martin Ellis, housing economist at Halifax. "The market is not going to maintain that momentum. Our outlook for this year is that prices are broadly going to be flat." Fathom's monthly Auction Price Index, released tomorrow, is expected to show that properties were fetching 21% less at auction than on the conventional market last month. That suggests the savvy investors who buy at auctions believe prices are riding for a fall.