Housing market hit by uncertainty over spending cuts

Uncertainty caused by future Government spending cuts heaped further pressure on the already fragile housing market in September, research indicated today.

Properties flooded on to the market during the month as worried consumers tried to sell their homes before the cuts are announced or the economic situation deteriorates.

But there was little demand for the glut of properties up for sale, as potential buyers remained in "wait and see" mode until the outlook for the housing market becomes clearer, the Royal Institution of Chartered Surveyors said.

A run of gloomy data on the property market in recent weeks, including Halifax reporting record price falls of 3.6% during September, has heightened fears that house prices could be heading for a double dip.

The supply of mortgages also remains tight, with many estate agents reporting a shortage of first-time buyers in the market.

Figures released by the Council of Mortgage Lenders today showed an 8% fall in the number of loans advanced for house purchase during August.

Peter May, of Minster Property Management in Dorset, said the fall in activity in September was as if a "tap had been turned off".

He said: "The general talk of cuts in Government spending appears to have caused the fragile confidence in the property market to be shattered and this very much looks like we are heading for a double dip in the housing market."

Ben Hudson, of Hudson Moody in York, said: "The property market is once again on a knife edge."

RICS said the balance of surveyors reporting a rise in new instructions nearly doubled during September to 22%, but new buyer inquiries remained negative, with 2% more surveyors reporting a fall than a rise.

The shortage of buyers, combined with the increase in new homes coming on to the market, saw house prices fall for the third consecutive month.

The group said 36% more surveyors reported a drop in prices than those who saw a rise, up from 32% more the previous month.

Surveyors expect further price falls, with a balance of 41% expecting the cost of property to continue declining, the highest level since March last year.

But the group said many areas of the country were reporting a correction in prices, rather than dramatic falls, and vendors who were prepared to be realistic with pricing were still able to sell.

Neil Hunt, of Wilkins Vardy Residential in Chesterfield, said: "There has been some improvement since August, but the triple whammy of Government cutbacks, mortgage restrictions and lingering economic recession continue to blight the market."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The September RICS survey indicated that the housing supply/demand balance had moved further in favour of buyers, which suggests further price softness ahead."

But he added that he expects house prices to "trend down relatively gradually" over the final months of 2010 and in 2011, losing around 10% of their value, rather than crash.

There was better news on the housing market from the Communities and Local Government department, which reported a 0.7% rise in house prices during July, although its index tends to lag other measures.

But it also said annual house price growth slowed for the third consecutive month to 8.3%.