Investors warned to tread warily in UK market

STANDARD & Poor’s warned yesterday that the British housing market could collapse exposing Irish investors in the process.

Speculators who flocked to Britain after interest relief was disallowed are at risk.

Chief economist with Friends First, Jim Power said “It was time for caution regarding the British market.”

Irish investors have been big in the British commercial property and could face a double hit if the market also went soft.

Estate agents CD Hamilton Osborne King said up to 50% of their commercial clients are currently investing in Britain.

That figure is likely to increase with stamp duty gone up to 9%, deepening the exposure of Irish investors to the British market.

For the first time the credit agency S&P has listed Britain among country’s whose banking system could come under severe pressure if the housing market reverted to the pattern in the early 1990s.

Chief economist with Friends First, Jim Power, stressed Irish investors needed to be careful given the 25% annual growth rates seen in the British housing market in recent years.

In that context Mr Power said investors “needed to be careful at this stage.”

But he thought that the S&P statement was over dramatic.

“It is important to realise that Britain has its own Central Bank and can dictate rates to meet the circumstances of the economy unlike Ireland and the rest of Europe.

While Ireland needed higher interest rates than the rest of Europe to curb inflation and keep prices down Mr Power still thinks the S&P concerns are overdone in the case of the UK.

Neither does he see any cause for concern in Ireland given that house prices have started to slow appreciably in the past 12 months.

S&P said fears of a sharp fall in the British housing market prompted it to name Britain for the first time as a nation with a banking system that faced potential stress.

Britain joins six other countries - including Panama, Portugal, the United States and the Netherlands - that the S&P annual report on financial-system stress, lists as vulnerable to increasing risks, such as bad debt and falling revenues.

The rating agency’s report comes after Britain’s central bank last week resisted calls to cut interest rates.It feared lower borrowing costs would fuel the potential bubble further.