House prices are falling at an average of 2.5 per cent a month, and could drop by as much as 10 per cent by the end of the year, according to the Halifax Price Index.
Halifax and the International Monetary Fund (IMF) have both predicted a gloomy outlook for the British housing market, which is experiencing its biggest hit since the crash of the 1990s.
Economists and politicians alike hoped that the UK would not see a housing crash on a similar scale to that of America, where house prices are already falling at an average of 10 per cent a year, but in its Global Financial Stability Report the IMF has predicted "a near doubling of repossessions in the United Kingdom", which could mean as many as 60,000 repossessions this year, based on the 27,000 recorded in 2007.
Critics have argued that Prime Minister Gordon Brown and Chancellor Alistair Darling should have given homeowners more warning signs that they could be facing an assault of mortgage
rate increases, and that they should have been urged to put precautionary measures in place.
Gordon Brown has defended his position, maintaining that repossessions remain a fraction of what they were in the early 1990s; he also pointed to the 180 per cent increase in house prices over the last 10 years, highlighting the disparity between this and the current average fall of 2.5 per cent.
An estimated 2.5 million borrowers are expected to come off fixed rate mortgage
deals over the next 18 months, and, according to the IMF report, they could face increases of one or two per cent to their annual mortgage repayments, £3,000 or more, as they find it difficult to find a competitive refinancing deal.
The rising mortgage rates are expected to put pressure on the Bank of England to cut the base rate in its Monetary Policy Committee meeting tomorrow, but some experts say that this will provide little relief for homeowners struggling to keep up with mortgage repayments, as the relationship between the base rate and the rates that lenders offer customers has become increasingly disjointed.
Some of the biggest lenders are now charging more than they were in December for even their most competitive mortgage deals, despite two rate cuts since, according to Moneysupermarket.com.
The winners of the credit crisis are the savers, who are experiencing the other side of the coin as banks and building societies strive to draw in more savings deposits with attractive rates that remain stubbornly high in spite of the recent cuts in interest rates.
© Fair Investment