Mortgage liquidity is the key to the UK economic revival
While there is no doubt that the UK economy has shown signs of life over the last few months, there are serious concerns that a reduction in mortgage liquidity in 2010 could force a second slump in the UK property sector. An influential report by Ernst & Young highlights this particular issue and seems to be gathering more and more supporters in the city. So what exactly is happening?
As we covered in one of our earlier posts, Moody's, the ratings agency, believes that the UK financial sector will report total losses during the recession of approaching £250 billion. While £110 billion of these losses have already been crystallised and announced, we could see up to £140 billion in additional losses announced over the next few years. This would put serious pressure on the strength of banking and financial balance sheets and could ultimately impact on liquidity in both the mortgage and loan markets.
If there is no food to feed the property market, i.e. liquidity, it is very possible that we could see a return to downward pressure which has dominated the property sector for the last few months. The risk is real and the risk is potentially massive if the UK government is not able to manage the economy over the next two years.
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