Cuts, cuts, cuts...

How will the Comprehensive Spending Review impact employment and society in general?

That’s a good question – and one that’s received a lot of debate already. The term “Middle Class Ghetto” actually came up last week as politicians and papers digested the impact of the reforms announced.

How this will affect the housing market and mortgage advice  has yet to be seen. To use an oft-used phrase, “It’s all about location, location, location”, and with the severity of the cuts yet to bite, you’re likely to want to know what lies ahead – whether you’re a first time buyer or a seasoned property investor.

I think that rents will rise and then fall: house prices will fall and then rise. This is not me being “zen” but is based on sound economic principles. People employed in areas of high public sector employment will see rents rising more than others initially, and house prices falling as they sell their properties following redundancy and move into rental accommodation.

Areas such as Lewisham with 39 per cent of its workforce employed in the public sector may seem an obvious target for falling values; but what about leafy Oxford? Its workforce is 46 per cent in the public sector!

Why will house prices rise again? The answer to that is simple. Rent is dead money. We have a home-owning culture and the economy will respond positively to the changes. And we have a mobile workforce who can move once renting.

As for those in London, I don’t think the next year will be boring; but the stability of London and the way in which it has bounced back from the dramas of the last few years is testament to how London’s solidity as a financial centre. Salaries and prospects look good. London and its feeder towns will continue to remain strong, though I anticipate the odd bad news-driven wobble.

Mortgage lending will be uncertain in the next year. Banks are softening their approach to income and loan to value whilst hardening up on the more political issues of bonuses and interest only as a response to the FSA’s dictates.

Overall the cuts will hurt areas of the UK: but maybe they will get us all financially fit. That said, getting fit can be a painful process, especially if you’re very unfit to start with. Hopefully at the end of the process, we’ll think that the gains justified the pains.