Rates upturn will lead to a long slog

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As WPP's Sir Martin Sorrell said yesterday: "Armageddon has been averted." But in terms of the housing market, is this a false dawn? Is the recovery sustainable?

The drop in interest rates from 5% in October to record lows of 0.5% has helped the market reverse the violent price falls of last year when houses were losing thousands of pounds in value every month.

Cheap mortgages for existing homeowners means fewer properties have come onto the market than is normally the case in a recession. At the same time, low interest rates have made homes more affordable for buyers, particularly those with a decent deposit.

With demand outweighing supply, prices have, at least for now, found a floor, despite the lack of bank lending.

But interest rates will not stay this low forever. Indeed, with inflation not falling as fast as expected, rates could be on the rise sooner than expected.

This could spell disaster for many buyers who overstretch themselves while rates are low.

Rising unemployment also poses obvious problems for struggling borrowers as mortgage costs go up.

A surge of forced sales combined with a lack of demand because of rising mortgage costs and job worries does not bode well for the housing market.

It may have stabilised for now, but it is hard to see anything other than a long, hard slog for the housing market and the wider economy.