Gloomy prognosis for UK property market

18 October 2007
Britain’s housing market is heading for a similar slump to the recent US sub-prime mortgage crisis according to the latest findings from the International Monetary Fund's bi-annual report.

Thanks to over zealous valuations, UK house prices have risen over 50% more than predicted in the past decade alone. The next stage, according to the IMF forecast, will be falling house prices and a severe threat to the UK economy.

The reasons behind the housing crisis is down to the US sub-prime mortgage disaster which saw lenders signing over huge sums to those with poor credit histories, which in turn has triggered the so-called global credit crunch.

The IMF report has also found that the cost of homes in Britain and other European countries have followed a trend of overpricing which, worryingly, exceeds that of the US housing market prior to the summer slump.

The fears are further compounded by two recent surveys by the Nationwide and Halifax building societies which indicate that house prices have begun to fall in certain regions of the UK.

Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: “The rate of house price growth in the UK cooled from 10.2% to 9.3% in the third quarter. Evidence of this cooling was supported further by regional data which showed the annual rate of house price growth slowed in nine out of Nationwide’s thirteen regions.”

The IMF report has also suggested that if Europe's governments tighten lending conditions for homebuyers, as has been the trend since the credit crunch, it could be the factor that forces house prices to plummet.

However, despite the gloomy forecast, the Intermediary Mortgage Lenders Association (IMLA) has said that the UK mortgage market is fundamentally sound. "The turmoil in the financial and mortgage markets was attributable not to an actual problem with the credit quality of UK mortgage books, but concerns among investors that UK lenders could encounter the same problems as have occurred in the US," said the executive director of IMLA, Peter Williams.

"That ignored the fact that the credit quality of UK mortgages remains very good. While house price inflation is falling and that pattern will run through into 2008, the simple reality is that, in aggregate, demand continues to exceed supply."

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