Latest research from the Government-funded Economic and Social Research Council (ESRC), warns that house prices could continue to go down for a further three years.  In addition to it stating that unemployment and the number of divorces were likely to rise, it said that the numbers of buyers and sellers would drop out of the property market, causing prices to drop.

The ESRC, funded mainly by the Department for Business, has compiled a research paper on the current economic situation imaginatively entitled, "Recession Britain."  The theory is that as prices decline, more potential vendors will take their houses off the market. This in turn leads to potential buyers dropping out of the market, knowing that with less property for sale they stand less chance of getting the house they want.  The end result being, that prices continue to decline.

Despite this gloomy report, current data from other sources is a lot more positive.  The Nationwide have said that house prices are up for four months in a row, with the average house price being £10,000 more than in January. The other big mortgage lender Halifax is almost as positive; prices up two months in a row and houses worth £6,000 more than in April.

But is it just a shortage of property coming onto the market that is causing this mini revival, as suggested by the Royal Institute of Chartered Surveyors (RICS).  Although RICS are saying that more of their estate agents are seeing rises than falls in house prices, they are also indicating that more property is starting to come to market.  If their first statement is true, then the mini-revival will be ended by the extra vendors.

It is important to note that the current property market revival is very fragile and could easily be countered by rising mortgage rates, the stuttering economy or a sudden upsurge in the supply of houses for sale.  The "W-shaped" theory is popular with many economists; whereby you have a sharp decline, a mini revival and then there is another decline (the so-called double dip) and finally the rise back to where the market started.  Agencies that buy into this theory are predicting falls by anything between 7% and 15% next year.

Mortgage Lending Down in August

Advocators of the double-dip theory will feel justified when they see the figures for mortgage lending during the month of August.  Council of Mortgage Lenders (CML) figures show that home loans for the month totalled £12.6bn, down 13% from £14.5bn in the previous month.  The CML said that the fall in lending had been expected and, although the prospects for the mortgage market remained weak (down 37% on the same time last year), it expects the slow improvement in lending to continue.

Lending is being held back in part, by a current lack of remortgaging.  Many homeowners have found it advantageous to stay on their current lenders standard variable rate (SVR) after coming off an initial fixed-rate period and others, who are looking to remortgage, face their home being revalued downwards, reducing their equity and making any potential deal look unattractive.