More strife for mortgage customers: HBOS predicts 9% house price drop

20 June 2008 / by Joy Tibbs
A trading update released by HBOS yesterday suggests that house prices could fall by as much as nine per cent in 2008, while the number of house sales may drop by as much as 45 per cent.

Mortgage customers are likely to feel dismayed by this report, particularly following recent reports of rising repossessions levels and an increase in the number of people experiencing negative equity as the size of their mortgages exceeds the value of their home.

This means the price of the average home could drop from £197,000 at the beginning of 2008 to £179,500 by the end of the year.

The new figures have changed significantly from its April prediction of a five per cent drop in house prices. And, according to HBOS, which owns the UK's biggest mortgage lender Halifax and Bank of Scotland, mortgage arrears are also set to rise this year. It describes the housing market as "subdued".

It has set aside an additional £720million to cover bad mortgage debts this year and has had to write down half its £200million equity investment in UK house builders as profits continue to fall.

"We expect the UK economy to slow further in 2008, with a modest rise in unemployment and low interest rates, accepting that inflationary pressures will restrict the MPC's ability to reduce base rates below current levels. We now expect house prices to fall by up to 9 per cent in 2008," the trading statement said.

"As previously indicated, asset growth is slowing and the rate of deposit growth is targeted to outstrip that for assets in 2008. We are achieving substantially better pricing on new lending in our key markets and, as a result, the decline in the net interest margin seen in 2007 is expected to moderate in 2008. We anticipate relatively stable and potentially improving margins in 2009."

HBOS share prices fell six per cent to 296.75p yesterday, not far above its 275p rights issue price. However, according to chief executive, Andy Hornby, the cash call – which is to be underwritten by Morgan Stanley and Dresdner Kleinwort – will proceed regardless. "We are not for turning," said Mr Hornby.

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