UK homebuyers should not dismiss the risk of a boom-and-bust cycle in the British residential property market, a report has warned.
A new report from independent market analyst Datamonitor warns that the UK may see a repeat of the woes currently afflicting the US sub-prime mortgage market, which has taken huge chunks out of the profits of global banking giants like HSBC.
It takes as its perspective the situation in 2005, when stagnant mortgage growth and slowing house price increases created strong expectations of a 'soft landing'.
Instead of this gentle slowdown, 2006 saw apparently unstoppable house price growth. This, accompanied by a rise in unsecured personal debt to an average of £4,522 and recent interest rate hikes from the Bank of England, creates the potential for the bottom falling out of the market, Datamonitor believes.
Despite this pessimistic talk the report points to two factors shoring up the current situation: a strong economy and even stronger demand.
"Datamonitor does not believe the housing market is on the road to a house price crash, mainly because the economy remains healthy, but the threat of a boom and bust cycle is still present," Karina Purang, Datamonitor's financial services analyst, commented.
"Such buoyant housing activity cannot be sustained in the long-term and, undoubtedly, house prices cannot keep going up forever."
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