Property recovery may prove to be sucker’s rally

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All but the most optimistic observers assumed the crash would continue for much of this year. In fact the final drop in the Bank of England rate to 0.5 per cent was the signal many first- time buyers had been looking for that things could get no worse.

Since then prices have edged back upwards and in some parts of London are now more than 10 per cent above their lowest levels.

However, many fear that the mini-boom is a "sucker's rally".

There are two scenarios for the economy over the next year. The V-shaped recovery that will bring rapidly rising interest rates as inflation fears return. That will be a disaster for the thousands of households that are only holding on because their mortgage bills have fallen so dramatically.

The alternative painful slog out of recession means unemployment passing three million early next year and falling very slowly. This will inevitably bring more of the repossessions that can drag down the market. All the while there is the spectre of record national debt, rising taxes and public spending cuts as well as the mortgage lending drought.

In either scenario property price rises are likely to be limited to the handful of locations that attract international money and the posher end of the "Bank of Mum and Dad" market.

There are already signs the rally that started in April has run its course. The autumn is usually a strong period for property. But as Bank of England Governor Mervyn King indicated this week the economy is not out of the woods yet. Not by a long chalk.