11/07/2010 ‘The Independent: How long can the ho. Paul Diggle, property economist at Capital Economics, said yesterday that a double dip for house prices ‘was "more likely than not" and predicted a 5 per cent decline over the course of this year: “The longer that mortgage lending remains soft the more likely itis that last year's house price gains will be reversed." The unusual and unexpected strength in house prices last year - up by 6 per cent in 2009 - was put down by those in the market to a "shortage of supply". That, in turn, seems to have been because of an unwillingness on the part of many lenders to foreclose on homeowners in difficulties. instead, and to avoid adding more write-offs to balance sheets already soaked in red ink, the banks and building societies exercised forbearance to borrowers in trouble, thus preventing a glut of repossessed homes being dumped on to the market, as happened during the 1990s slump, creating a downward spiral. However, Mr Diggle added “lenders can't carry on doing that forever" and the Bank of England's last Trends in Lending report offered anecdotal evidence that such patience was coming to an end. The pressure on the banks will be increased in the coming months in any case as about £400bn in official support to them is due to be withdrawn, and banks will have to turn to wholesale money markets to support their lending. This may prove expensive and scarce, as the sovereign debt crisis has heightened ‘nervousness about their health. The European Central Bank will suck €142bn (£115bn) of its lending to the European banks on Thursday. The extent of the squeeze on British living standards over the next few years was laid bare by the Hay consultancy group yesterday, who predicted that wage rises will fall badly behind inflation for the next four years. With median salary growth forecast by Hay Group to reach just 2.4 per cent this year, and inflation rising to 5.3 per cent, according to the Retail Price Index (RP), pay is faling in real terms for the average British worker for the first time in a decade. Although inflation will drop in coming months, the hike in VAT to 20 per cent in January next year will be an obvious hit to the spending power of family budgets. Reductions in tax credits and thresholds, new higher rates of income tax for the better-off and increases in other taxes such as capital gains tax (CGT) and insurance premium tax will wreak further damage. The higher rate of CGT will make the returns from buy-to-let investing even less attractive. Hay Group predicts the outlook for the next four years is a bleak one, with typical pay increases likely to remain below inflation. The forecasts represent a sharp break with the “nice decade”: Consistent pay increases over the past 10 years amounted to a 37 per cent boost to salaries, or 9.5 per cent after inflation. In the Budget the Chancellor announced a two-year pay freeze for public sector employees earning more than £21,000 a year. The Bank of England reported that mortgage approvals for house purchases edged back to 49,816 in May afier rising modestly to 49,828 in April. May's level was well down from the recent high of 59,338 seen last November and substantially below the average monthly level of 91,300 since 1993. Itis also well below the 70,000 to 80,000 level that has in the past been considered consistent with broadly stable house prices. Estate agent: ‘Sales have fallen by between 25 and 30 per cent’ Tim Mullenger, 57. The managing director of Mullenger & Co, an estate agency in Thetford, Norfolk, says the housing market is flat-lining, especially in East Anglia. "The lack of mortgage finance Is the killer for us," he said yesterday. "A lot of retired people have sold their family homes in and around London and want to use the equity to come to our part of Norfolk. But i's just ot happening any more because of a lack of sales and mortgage finance in London. "Sales have dropped off by between 25 and 30 per cent in just 18 months. The market will only start to move when there is an easing of the mortgage market and deposits of about 25 or 30 per cent come down to more like 10 per cent "Even with parental help, finding the value of the house to put down as a deposit is difficult for most people. Building societies may be offering lower rates, but they are charging extortionate fees instead. “Buyers are looking more carefully for houses and you can't blame them at al - it's a buyer's market.” The sellers: ‘We can't afford to reduce the price any further license.icopyright.nevy...viewFreeUsea. 2B