Call me the Weatherman. Here's my Forecast.

Daddy seems to be milking this birthday malarky, but I'm happy to tag along for the ride. You see, Nanna and Grandad came to visit today for a birthday dinner to celebrate Daddy getting even older and they bought mesome funky new threads.

While I didn't fancy digging into their supper, Nanna did give me my night time bottle. Cardiff is a long, long way away but when M&D finally get round to buying a big old house they can come and stay lots.

But that won't be for a while, sadly, if Daddy and Grandad are right (they're always moaning about the economy; they're never happier than when they're having a good moan). You see, according to Fitch, the ratings agency, recent gains in the main UK house price indices is only a temporary respite. The agency continues to expect that UK house prices will fall approximately 30% overall from the October 2007 peak. Prices are currently 13% down from that peak, having dipped as low as 19% down in Q1 2009.

The UK's average house price to income ratio remains significantly higher than the long term average, with the drag of rising unemployment, still yet to peak, and low wage inflation yet to be significantly reflected in house prices.

Furthermore, recent easing in credit availability may also prove to be temporary as Fitch expects lending appetite to be pro-cyclical with the performance of house prices and the credit performance of the underlying borrowers. The deep interest rate cuts of late 2008 have eased affordability for a large proportion of mortgage borrowers. This has in turn led to a stabilisation in major performance indices such as 3-months plus arrears and foreclosure rates. Although Fitch expects the UK base rate to remain at its current low level of 0.5% throughout 2010, rising unemployment could trigger deterioration in these performance indices. It is likely that mortgage lenders would respond by further tightening lending criteria.

Attractively priced funding over 80% loan-to-value (LTV) remains scarce, despite the fact that some lenders have recently increased the LTV limits at which they are prepared to lend. The average UK house price is approximately £162,000. If mortgage availability stabilises at current LTV limits, according to data from the Nationwide Building Society this would necessitate a first time buyer having approximately £32,000 in cash as a deposit to buy a house.

I might have to dip into my savings to help them out. But only if I get the biggest room.

AMK