U.K. Housing Market Recovery Will Fade Next Year, RICS Says

By Jennifer Ryan

Dec. 22 (Bloomberg) -- The U.K. housing market recovery will fade in 2010 as more homes become available to buy and officials start to exit emergency stimulus measures, the Royal Institution of Chartered Surveyors said.

Prices will increase in a range of 1 percent to 2 percent after rising about 3.5 percent this year, RICS, based in London, said in a statement today. Average transactions may climb to 70,000 a month by the end of 2010 from a low of 26,700 in February this year, the forecasts show.

Bank of England policy maker Kate Barker said last week that house prices may stagnate in 2010 as unemployment climbs. Policy makers this month kept their bond-purchase plan at 200 billion pounds ($322 billion) as they assessed whether the U.K.’s longest recession on record has ended.

“You have a relatively fragile recovery and a background in which the government and central bank are thinking about exit strategies from their stimulus packages,” Simon Rubinsohn, chief economist at RICS, said in an interview. “As these begin to take effect there will be more challenges for the housing market.”

The rally will fade as the end of central bank bond purchases next year lifts bond yields, which will in turn boost the swap rates used as a benchmark for mortgage costs, RICS said. The group predicts the central bank will start to raise its benchmark interest rate from the current record low of 0.5 percent next year.

The government’s removal of a temporary cut in sales tax in January, a levy on bank bonuses, an increase in the top rate of income tax to 50 percent and expected further fiscal measures to curb Britain’s record will also curb house-price gains, RICS said.

Election Looming

Prime Minister Gordon Brown must call an election by June. His ruling Labour Party trails the opposition Conservatives by 17 points, according to an Ipsos-Mori poll in the Observer on Dec. 20.

“Whoever wins the election next year will make big tax increases or spending cuts, or both,” Rubinsohn said. “These will all present challenges going forward.”

U.K. house prices rose 2.7 percent from a year earlier in November to an average 162,764 pounds, Nationwide Building Society said Dec. 1. Values were 13 percent lower than at their peak in October 2007.

RICS said last week its sales-to-stock ratio, a measure of slack in the housing market, rose to a two-year high of 31 from 30 in October. Average sales per surveyor in the last three months held at 19, the highest since March 2008.

Barker said in an interview last week the property market has “remained surprisingly tight” with buyer inquiries outpacing the stock of property available for sale.

“I would be pretty surprised if we saw the strength of house prices sustained into next year,” she said. “I would see next year probably as a year where activity remains relatively low and possibly prices don’t change very much.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net;