Market turmoil dashes hopes of recovery in UK housing sector

The latest round of bank failures and forced mergers bodes ill for Britain's property market as deep staff cuts get under way as a result of the shake-up in the financial market, warn commentators.

Last week's collapse of Lehman Brothers meant 5,000 London staff lost their jobs overnight, while the takeover of HBOS by Lloyds TSB will mean 40,000 staff cuts, analysts have said - though management denies the consequences will be so severe.

Hedge fund management companies are meanwhile struggling, and institutions like Bradford & Bingley are vulnerable, so more jobs may go in coming weeks and consultancy firm Hay Group forecasts that 110,000 finance jobs could be lost nationwide over the next 12 months.

Liam Bailey, head of residential research at property consultancy Knight Frank, said the turmoil and job losses in the financial services sector had ended hopes of recovery in the residential sales market.

'The market was still struggling in August and early September but there was some sense of slowly rising optimism. Now this has been cancelled by these events,' he said.

Lucian Cook, residential research director at property consultancy Savills, said the financial market job losses would push down sales volumes and prices in London's residential property market, particularly for homes in the #1 million (HK$14.34 million) to #2 million bracket such as smart flats, which are favoured by bankers and stockbrokers.

'It will accelerate the fall in prices,' he said. 'We had forecast job losses and although this has come at a bit of a rush it is still consistent with a 25 per cent fall in prices peak to trough that we are expecting.'