UK house prices to fall by 25% by end of 2009

27 October 2008 / by Rebecca Sargent
House prices will have fallen by almost £50,000 since the third quarter of 2007 by the end of next year, research from the Centre for Economics and Business Research (cebr).

The research house added that house prices are expected to plateau during 2010 before rising by around 20 per cent between 2011 and 2012. However, according to the forecasters, house prices will still be 3 per cent lower in 2012 than they were during their peak in 2007.

The predicted peak-to-trough house price fall of 25 per cent comes despite the fact that the base rate is expected to fall by a whole basis point before Christmas and could be as low as two per cent this time next year.

The forecasts also follow the Government's recent bail out announcement that is intended to recapitalise the banks and encourage them to ease mortgage lending and availability, suggesting that the plans may not be enough to see the recovery of the housing market any time soon.

However, the economists at cebr believe that transactions in the housing market will recover sharply in 2010, up 33 per cent from 2009's predictions. Commenting on the predictions, managing economist at the cebr, Ben Read said:

"Confidence in the housing market has been shattered as lack of mortgage availability has left few sellers chasing even fewer buyers, and expectations of falling prices have become embedded.

"Now that the financial crisis turns into an economic crisis with rising unemployment and falling household incomes, we could see house price falls starting to accelerate again."

Commenting on the financial moves that may have an impact, he added: "However this will to some extent be offset by aggressive cuts in interest rates, at least some of which will be passed on to homebuyers, combined with a gradual relaxation in mortgage availability as the impact of the banking recue package kicks-in."

However, Mr Read added, the house price drops cannot last forever, he concluded: "Longer term, fundamentals of not enough growth in the housing stock, rising population, progressively smaller household size and growth in incomes will eventually reassert themselves."

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