You are here: Home - News -

Housing kept UK out of recession, says L&G

by:
  • 05/09/2002
  • 0
Legal & General has claimed the booming housing market was the deciding factor in keeping the UK out...

Legal & General has claimed the booming housing market was the deciding factor in keeping the UK out of recession during the last 12 months.

However, even though it expects affordability issues to cause a downturn in house price inflation by next year, it has risen enough to prevent gross domestic product (GDP) growth falling below zero.

The claims were made at Legal & General’s periodic economic commentary, Fundamentals, which examines the state of the economy.

Andrew Clare, financial economist at Legal & General, said: ‘Economic growth did decline over the course of 2001, but the UK did not experience the recession some commentators were predicting.

‘The main drag on activity over the last year has been the recession in the industrial sector, which manifested itself in weak investment and a worsening trade deficit. But while industrial production has dropped off, high activity in the consumer and housing markets has remained high ‘ hence the phrase ‘twin-speed economy.”

Clare warned that affordability problems will eventually cause the housing market to slow, but there should be a soft landing, rather than a crash.

‘Given the current economic climate ‘ with a tightening labour market, weak housing supply and an improving economy ‘ we believe the affordability issue will kick in gradually rather than suddenly, as it did in the late 1980s. The pool of potential first-time buyers will shrink slowly in the coming months which, in turn, gives rise to a soft landing for the market as a whole,’ he added.

However, there were some causes for concern. If and when interest rates rise, the affordability issue could become more serious. Clare highlighted the high number of new mortgage deals that have been signed at discounted rates, significantly below headline rates.

‘It seems likely that those who are most at risk from a rate rise are the ones most likely to have fixed their interest rates as they may have a huge hike in payments after the initial period expires,’ said Clare.


Tags

There are 0 Comment(s)

You may also be interested in

Read previous post:
Flexible deals help 25% of borrowers overpay

A quarter of those with flexible mortgages are either overpaying by 100%, or adding lump sums to red...

Close