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Friday, April 25, 2008

Housebuilder's feeling the crunch

The construction industry is now feeling the pain of the liquidity crisis as Persimmon the UK's largest house builder announced this week that it intends to stop building new sites until the outlook for the economy improves.

This is likely to be the tip of the iceberg as more builders follow suite. This is likely to cause problems for the UK government who pledged to build 3 million new homes by 2020. This over ambitious target now looks more and more less likely to be achieved than when it was announced.

This is likely to only support house prices and lead to renewed growth in due course. The injection of £50 bn into the mortgage market will take time to feed through and it is unlikely that the UK mortgage market will return to normality any time soon.

Lenders are slashing staff levels so obviously do not see any upturn any time soon. It is likely to be the last quarter of this year before we can even assess the situation properly and start talking about better times. Hopefully interest rates will have come down a little further by then, but as stated in previous articles the Bank of England still have the worry of inflation getting out of control which could of course curtail any interest rate cuts.

The big question is whether if the demand for home ownership is waning then surely the demand for rented accommodation will rise. This would mean that buy to let would still be an attractive option especially for professional landlords.

If you have any questions on this article or others like it, please feel free to contact Solution Mortgages on 0845 123 1260 or visit us at www.solution-mortgages.co.uk