Jonathan Davies of Armstrong Davis Chartered Financial Planners reeled off a list of macro-economic factors which he believes will bring this about: half a million more people to lose their jobs by the end of this year; increases in tax and dramatic decreases in public expenditure after the 2010 election, leading to further job
cuts in the state sector; rising interest rates increasing the cost of borrowing; billions of pounds worth of toxic debt still held on banks’ balance sheets, which we still don’t know about. All of which rather depressing reading unfortunately rings true.

There is widespread consensus that unemployment, which currently stands at over 2.4
million, will breach the three million mark by Christmas, with official data on liquidations and administrations pointing to large-scale business failures in the second half of the year. Public sector spending must be cut dramatically and taxes
will have to rise in order to pay for the bail-out and £175bn of Quantitative Easing that the Government has poured in to prop up the economy, regardless of who wins the election, which must be held by next June.

With Bank base rate at 0.5%, the cost of borrowing has only one way to go, and that is up, which will further restrict demand in the housing market as even fewer people will be able to afford a mortgage. Indeed, Jonathan Cornell of First Action finance pointed out last week that if lenders continue to apply the current record margins to their products, mortgage rates could go into double figures once Bank base rate goes up. And it will go up if inflation accelerates (which may happen – just look at the oil
price, which has rebounded from $40 a barrel last year to $75 recently). And as for the billions of pounds of toxic debt still held on lenders’ balance sheets, well, we don’t know what we don’t know, but we do know that they have no appetite to lend in any
case as they are busy rebuilding their balance sheets, maximizing profits and in some cases trying to repay the taxpayer.

Add to this the fact that thousands of mortgage borrowers will be coming off incredibly low tracker mortgage deals between now and the end of the year, seeing their monthly repayments leap by over 40% in many cases (I know, I’m one of them and I’ve done the maths), and it’s easy to see how the forecast leap in repossessions is highly likely to come about.

While all of the indices have seen a slight upturn in average house prices over recent months, most agree that values are being propped up by a lack of supply, as nervous homeowners sit on their hands. A slew of forced sales as more people lose their
jobs, former city workers run out of their redundancy money and ex-tracker borrowers see repayments move beyond their reach, could significantly increase the supply of properties to the market. If that coincides with a further decrease in demand as interest rates rise, the logical economic result should indeed be a significant fall in prices.

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I don’t think we can rule out further decreases, at least not in some parts of the country. But I don’t agree with Davis’ dire predictions either.

The third Moneybox guest, Peter Bolton-King of the National Federation of Property
Professionals, opined that average property prices in 2014 will be between 5% and 10% higher than they are today. Of course, being an estate agent, he would sound a positive note.

But I agreed. For a start, I do accept the argument (which Davis rejects), that in the longerterm demand for UK housing will outstrip supply because we simply have not been building sufficient numbers of properties for many decades.

What is more, housebuilding since the credit crunch has ground to a halt, and will
take many years to pick up. But perhaps more importantly, the UK housing market is a singular beast, which has never conformed strictly to the laws of economics. It takes a psychologist rather than an economist to understand the relationship the British have with homeownership.

Sentiment and confidence play a large part in determining the value we ascribe to property. Perverse as it may be at times, we do love owning our own bricks and mortar. And as long as we can find someone to give us a mortgage, whether it be a
UK lender or the Bank of China, we’ll keep on borrowing to fund our love affair. And I believe these intangible, emotional drivers will play an important role in supporting the value of UK property