Gordon Brown is counting on a swift economic turnaround. It’s probably his Labour Party’s only hope of avoiding a humiliating electoral defeat to the Conservatives next year.

The latest news on the economy has certainly got people in Downing Street smiling. The housing market is stabilising and some commentators are even talking about Britain becoming the first major country to pull out of the recession.

Treasury forecasts of reasonable growth that were derided just two months ago suddenly don’t look so bad.

The Number 10 dream scenario is that the economy recovers strongly, Brown takes the credit and the polls turn in time for a May election.

But what happens if the economy does turn around by the end of the year and the polls don’t get any better?

If that happens, some party strategists are wondering whether that might be a good time for Brown to step down, say in January.

He could say he did what he set out to do — get Britain through the recession — and it was now time for a new face.

The honeymoon bounce could end up being Labour’s only hope.

House prices have dropped, interest rates are low and plenty of people are straining at the leash to get on the housing ladder.

Now the Nationwide Building Society says house prices have risen for the first time since October 2007. 

The Nationwide cautioned about jumping to conclusions on the basis of one month’s figures but the news was enough to send the pound up against the dollar and some analysts said it was more evidence that the battered housing market may be recovering. 

On the other hand mortgages have become much harder to get and rising unemployment is working against any recovery.

What do you think? Is it premature to start talking of green shoots in housing?

There was more gloomy news for the housing market today as property website Rightmove announced that asking prices for houses in England and Wales were 9 percent lower than a year ago. New listings meanwhile were 57 percent lower than March 2008. The average asking price actually increased by 0.9 percent between February and March this year, but Rightmove warned that this was caused by new sellers being unrealistic about how much their homes are worth.

So what can be done to revive the stagnant housing market? Citywire has one radical suggestion: make sellers pay stamp duty rather than the buyers. Every year there are calls to abolish or reform this “flawed tax”, but Citywire’s Lorna Bourke says that making this switch would be an incentive to first-time buyers and would cost the government nothing. What sellers would say about this, however, is another story.

Citywire also comments on the recent report by Numis Securities in which they said that house prices could have another 40-55 percent to fall before bottoming out. Ouch. David Smith, writing in this weekend’s The Sunday Times, dismissed this report as “unconvincing.” Smith writes that the chances of the average house price in the UK slipping to £66,000 from the current £150,000 are slim, especially as interest in the market and new buyer inquiries are rising.

The Numis report predicting the rather frightening fall in house prices has sparked a great deal of debate on the web; it is the most commented on article on thisismoney.co.uk.

Even if you did want to buy, what are your chances of securing a mortgage? Not good, according to Rupert Jones writing in the Observer. Fewer than 9,000 first-time buyers were able to take out a home loan during January and the average first-timer’s deposit was a new high of 24 percent of the value of the property. So while buyer inquiries may indeed be on the up, raising the finance to actually buy a property is becoming harder and harder.

And it could be about to get even more difficult. Telegraph.co.uk reports that home buyers could be prevented from borrowing more than three times their annual salaries under new mortgage rules to be announced by the Financial Services Authority.

All of which raises a number of important questions about you and your home. Is it a good time to sell or buy? Would you be better off renting? What sort of mortgage should you apply for? Thankfully, there are a number of great tools on the web to help you decide.

The Times has this handy mortgage calculator to calculate what your repayments would be were you to rent or buy. Moneysavingexpert.com meanwhile has a great tool which helps you decide if you should go for a fixed, discount or tracker mortgage for those of you looking to buy or remortgage.

If you want to know how much your home could be worth but can not be bothered dealing with an estate agent, then you can search the UK Land Registry database of houses sold in England and Wales since 2000 or find out more information about properties and monitor average house prices at the Land Registry website.

One thing looks to be sure this year - the housing market has further to fall. Some of the gloomiest predictions are for a further 20 percent slump before a recovery may set in.

Our own Reuters poll of 37 analysts at UK banks, published today, predicts that prices are likely to drop by about 11 percent this year and that it will take until 2010 before it gets better.

How much do you think house prices will fall in 2009?

James Saft is a Reuters columnist. The opinions expressed are his own.

Even in the good times, many British consumers were borrowing against their houses just to fund routine consumption, indicating a big hit to come for retail sales and for the banks who hold the loans.

With house prices falling rapidly and mortgage debt tougher to get, it is no surprise that homeowners are less able and inclined to borrow against their houses in order to spend.

That will be hitting the High Street now - analysts are expecting a 0.6 percent fall on the month in retail sales for November when data are released later this week. But a rise in unemployment next year could expose a really serious weakness in household finances, as consumers who counted on being able to extract wealth from their houses to smooth consumption in bad times find that, when bad times come, the wealth isn't there and the banks don't want to lend anyway.

Researchers at Durham University looking at survey data found that 37 percent of homeowners borrowed against their house between 2002 and 2005, typically realising about 6,000 pounds. That's a lot people borrowing a lot of money against very illiquid and now hard to realise assets.

Even more interesting is the pattern of what householders were doing with the money and what was happening to them when they decided to borrow. Over time the proportion of people borrowing to re-invest in their houses through improvements fell, while more was finding its way into day-to-day costs, according to Susan J. Smith, a professor at Durham and one of the authors of the study.

This was borne out by a high percentage of equity borrowers who had lost their jobs, become pregnant or had a child in the year they borrowed.

How exactly a borrower who has lost his job gets a bigger mortgage is a puzzle, but one that evidently banks and borrowers in Britain together have somehow managed to solve. The record in the United States shows that the housing boom brought with it a tremendous amount of mortgage fraud, much of it abetted by people within the lending industry.

In short, it seems that even during boom times in Britain people weren't borrowing against their houses simply to buy BMWs and fund vacations, but often to keep their households ticking over during tough times.

"The rising property market was central to encouraging people to borrow more for non housing expenditure," said Ross Walker, economist at Royal Bank of Scotland in London.  "And with the housing market now in reverse you would expect to see a retrenchment. It reinforces the potential fault line for the UK household sector: there is a big debt exposure and the real test will come next year as unemployment rises."

BORROW NOW, DEFAULT LATER
The housing safety net, such as it was, simply won't be there next year when unemployment vaults higher, which is very likely to exacerbate a spending slowdown which itself will feed unemployment. And remember, these weren't people who were defaulting on their house loans in order to be able to pay their grocery bills, but people who were in part paying their grocery bills because they could borrow against their houses.

I wouldn't want to be the bank that made those loans, or the government that insures that bank. It also goes some way, in my view, towards explaining the very precipitous fall in the pound, which is down more than 30 percent on a trade-weighted basis this year.

According to a survey of households just released by the Bank of England, credit is much harder to get as compared with a year ago. A total of 16 percent of households said they had put off spending because they were concerned about access to credit, up by a quarter from a year ago.

Only six percent of mortgage borrowers said they had taken out an additional secured loan, compared with 10 percent last year and 14 percent in 2006. Nearly 40 percent took out these loans to pay down other debts. That points to higher credit card losses and delinquencies next year, as unemployment interacts with an inability to access fresh secured loans.

So 2009 looks like it will feature higher unemployment, much reduced consumer spending, impaired access to credit and a default cycle that will worsen the already difficult capital problems of the banking sector. There has been a lot of effort and exhortation to try and keep banks lending to consumers in Britain, presumably on the view that it's best to sober up gradually.

That can only work so long, and if it comes at the expense of capital for businesses that make and sell things, especially overseas, it may in prove to be a mistake.

And while big ticket items like automobiles, which are easy to defer, are now suffering, next year may see very tough times on the British high street for more basic items.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

This is a guest blog by Melanie Bien, director of independent mortgage broker Savills Private Finance. The opinions expressed are her own:

The Bank of England’s decision to cut rates by 1.5 percentage points to 3 per cent - the lowest level in 54 years - is a huge surprise and everyone was caught on the hop by this drastic reduction.

While on one level it is welcome news, particularly for those on base-rate trackers who will feel the full benefit straightaway, it is worrying on another: how bad have things got to necessitate this dramatic reduction?

The next inflation report from the Bank of England will be interesting reading. The reduction will not be an overnight solution to the problems in the mortgage market. But it will start to have a positive effect on the interbank rate - the rate banks pay to borrow money.

These rates have been much higher than base rate: three-month Libor is around 5.7 per cent, for example, explaining why new mortgage rates have been slow to fall. It is unlikely that lenders will reduce their standard variable rates (SVRs) by the full amount but with such a big rate reduction there will be pressure on them to pass on at least some of it, particularly those who passed on nothing after October’s half-point cut.

Those coming up to remortgage will be in for a shock if they think new rates will be much cheaper. A number of lenders - Lloyds TSB, Northern Rock and Woolwich - have pulled their trackers and are set to launch more expensive replacements. Abbey has already priced its trackers 50 basis points higher in anticipation of this reduction in base rate.

Lenders who have cheap trackers are likely to be flooded with applications, which will affect service levels. One way of controlling this is by raising rates and lenders are adopting a herd mentality, copying each other so no-one is left exposed with market-leading rates. Fixed-rate mortgages have started edging down and will continue to do so.

But while rates are falling on some products, criteria are tight and this will take some time to improve. The best mortgage rates are still available to those able to put down at least a 25 per cent deposit or who have this level of equity in their homes. First-time buyers without financial assistance from their parents will continue to struggle to get on the housing ladder.

It’s every houseowner’s worst nightmare - and it’s official now: more than a million households could fall into negative equity if the housing slump continues, the Bank of England said today.

Growing numbers of home owners could be forced to sell their properties at a loss, as the property downturn gathers pace and vendors run out of options.

The scope of the negative equity nightmare could be massive. The BoE said that a 15 percent drop in prices from their October 2007 peak would leave one in 10 homeowners with outstanding mortgage debt worth more than the value of their home. Earlier this week the Centre for Economics and Business research predicted  that the average cost of a UK home will fall up to 40,000 pounds by the end of 2009.

First-time buyers are among those hardest hit and buy-to-let landlords may fall behind on mortgage payments or may be forced to sell at a loss as lending dries up.

And if that’s not gloomy enough - two further sets of figures provided more bleak news for the housing market on Tuesday.

The Financial Services Authority said the number of home repossessions in the second quarter rose to 11,054 from 9,172 in the previous three months. And according to the Land Registry, the average price of a house in September was 168,814 pounds, down another 2.2 percent on the month, a far cry from around  200,000 pounds seen at the peak last summer.

How have you been affected by the downturn in the housing market? Have you even been affected by negative equity, either now or in the past?

When exactly the housing market will recover is anyone’s guess and gloomy predictions abound. One academic says it even could take as long as 15 years.

Andrew Clare, a professor of asset management at Cass Business School in London, used futures contracts based on the Halifax house price index to figure out his dire prediction. He calculated that in 2010 the average will be 40 percent lower than the peak of 199,600 pounds in August last year - about 120,000 pounds.

That’s particularly bad news for those who bought a house last summer, and Clare predicts that negative equity will be “a big feature of our economic landscape for years to come.”

The Halifax said last week house prices dropped at their fastest rate in September since records were first kept 25 years ago, with the average average price down 13.3 percent.