House Prices Still Rising, says London Mortgage Broker, London Mortgage Advice Tuesday, 15th December 2009

Will proces continue to rise? A run of positive data on the housing market during the past few months, with a number of key house price indexes showing price rises and mortgage lending also picking up has been prevalent.

However in a special report on the housing market, the Ernst & Young Item Club predicts that prices are likely to drop again in the first half of next year.

They forecast the dip would be followed by two years of stagnation before picking up again only gradually as the wider economy strengthens and credit conditions ease.Hetal Mehta, senior economic adviser to the Item Club, said the thinktank "believes the current stabilisation in the housing market is a false dawn".Price rises largely reflect the acute shortage of available properties, with many homeowners either trapped in negative equity or reluctant to sell for fear of locking in the losses of the past two years."A small number of cash-rich buyers have supported prices but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year.It would be difficult to make a case for a sustained pick-up in prices without a recovery in mortgage lending, which still appears to be some way off.Banks are continuing to restrict the amount of money that they are willing to lend, with them looking to strengthen, rather than expand, their balance sheets," she said.

Tough lending criteria and the scarcity of mortgage supply is making it particularly difficult for first-time buyers to enter the market.Given that they typically buy cheaper properties, that will have significant implications for homeowners looking to trade up, limiting the number of transactions taking place.With prices and the volume of transactions closely correlated, the dearth of first-time buyers will curb the usual chain of events, where rising prices provide homeowners with the equity to trade up, which itself pushes up prices, according to the report.