An ill wind

Prior GL Hearn reports, over the last four months at least, have focused on the potential for a ‘double dip’ recession following on from the more positive economic news of recent times.

The problem that might come about is: no sooner do we all conclude we are out of recession than the economy is taken straight back into recessionary mode by increasing prices, both in the high street and when it comes to mortgaging the homes in which we live.

In the banking world the new parlance is that of ‘headwinds’. These are the factors that could push the economy back into recession. The Bank of England Monetary Policy Committee has set its inflation target at 2 per cent for this year. It is worried about the impact of restrictive credit, the need to strengthen public and private sector finances and the fact that consumer price inflation is likely to remain high in the short term.

The gross domestic product is likely to be on an upward course for the reasons to do with current stimulus measures, higher asset prices and the depreciation of Sterling and the recovery in World demand.

So how does this all affect property and property prices?

Inflation going above 2 per cent would constitute being the very ‘dampener’ recovering markets would least like to see occur at this time. Mortgage holders on variable rate mortgages have the unenviable prospect of their borrowing costs going up in the short term, albeit in a seemingly small stepped increases. This will have the effect of taking money out of a householder’s disposable income pot.

Cheap home finance is something that the average mortgagee has become used to and it has certainly helped re-stimulate the economy from the doldrums of mid 2009. The removal of such a stimulus will be the very headwind effect the government will want to and need to balance out over the remainder of 2010. Let us all have confidence in the MPC and the fact they will manage such a process well – positive sentiment in the property world can be more important than macro economics itself.

Let us believe the chilly headwinds of January are something from the past and warmer climes are ahead. This must surely be true!

Justin Sumner is director – new homes at consultancy GL Hearn

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