There are concerns that the UK could enter into recession. If this is the case, it would further weaken the UK economy. A recession would lead to higher unemployment and lower consumer confidence. Both these factors would have a negative impact on the Housing Market. Because housing costs are such a large % of income a fall in income would lead to lower demand and cause a big fall in house prices.
The only benefit of a recession, as far as the UK housing market is concerned, is that it could lead to lower interest rates. IN a recession, inflation usually falls and this means the MPC will be able to cut rates. However, this particular recession may not be straightforward as we currently have a slowdown and higher prices e.g. rising oil and food prices. If a recession is accompanied with a stubborn inflation rates, interest rates may not fall, further reducing the demand for the housing market.
I really think the Government should act now. In an effort to resist any further slowdown in the housing market they could make a BIG difference by reducing stamp duty thresholds, and force the MPC to do something with interest rates. Also its about time they stop trying to penalise buy-to-leters – a recent article from Reuters suggests the buy to let market is helping avoid an even more painful housing crash.