Merrill Lynch warns UK property market

Merrill Lynch has warned the UK property market is being squeezed by the twin evils of reticent buyers and reluctant lenders.

In the mid-term these pressures could create a correction more severe than the crash at the beginning of the 1990s, warns the investment bank.

The problems are exacerbated by a growing fear over job security.

Research from the Office for National Statistics (ONS) released today show unemployment rose dramatically in May, with 38,000 more people out of work over the last three months, taking the total to 1.64 million.

This has created a fear among buyers, discouraging them from entering the market, indeed the report argues, employment is the "single most important determinant" of consumer confidence and housing transactions in the UK market.

As such, if unemployment continues to increase, it will prove directly detrimental to the market, argues the report.

"If, as we suspect, unemployment trends higher, then we believe that this will put additional pressure on housing transaction volumes," explained the Merrill Lynch report.

Research from Halifax finds prices were down 3.8 per cent year-on-year during May, which is supported by the 4.4 per cent drop recorded by Nationwide.

"We are clearly seeing a UK housing market being squeezed on opposing fronts - by a lack both of willing lenders, as well as willing purchasers," said the report's authors, Mark Hake and Judy Shaw.

"This was precisely the pattern in the early 1990s, in that once house prices started to fall, consumers felt no need to buy, taking more demand out of the market, which in turn compounded the shortfall of prospective purchasers so leading to further price falls."

Chris O'Toole