House prices 'could fall 40 per cent without loan boost'
House prices could drop by a total of 40 per cent unless the Government steps in to boost lending, a report says today. The extreme scenario painted by the Centre for Economics and Business Research (CEBR) would see prices plunge by a record 25 per cent this year after last year's 16 per cent slide.
If the Government's banking bailout is able to boost mortgage approvals to 50,000 a month from the current level of about 32,000, the price fall from peak to trough could be limited to 32 per cent with values bottoming out in the first quarter of 2010, CEBR said. But without effective intervention to increase lending, the total fall would be 40 per cent with prices stagnating until 2012 and not getting above 2003 levels until the following year.
As part of a range of measures to get banks lending again, the Government intends to guarantee mortgage-backed securities to restart the market for securitisation – packaging up of loans for sale to investors. Securitisation provided £200bn of finance for banks in 2007 before the market was paralysed by fears stemming from the sub-prime crisis in the US.
The plan was recommended by Sir James Crosby, the former chief executive of HBOS, who predicted in November that, without action, net lending for house purchases could fall below zero as fewer loans are made than are paid off. Bank of England figures on Friday showed a rise in mortgage approvals to 31,000 in December from 27,000 a month earlier. The surprise increase followed data from the Royal Institution of Chartered surveyors that showed new buyer enquiries beginning to rise.
Halifax, the country's biggest mortgage lender, has pointed out that prices for first-time buyers are now more affordable than for years but potential buyers remain wary of further falls while banks are limiting their lending as bad debts rise.
Benjamin Williamson, an economist at CEBR, said: "The glimmer of light at the end of the tunnel for the beleaguered housing market is that prices and interest rates are now at levels whereby any improvement in lending is likely to lead to substantially increased activity and at the very least a bottoming out in house prices. However, if lending remains close to current very low levels, the spectre of the biggest annual drop in UK GDP since post-war demobilisation in 2009, with concomitant rises in unemployment and collapsing confidence, will likely lead to an acceleration in house price falls."
CEBR said that the crisis in the housing market lay at the heart of the credit crunch and that direct intervention to shore up the supply of mortgages would stimulate activity. The research unit added that a recovering housing market might play a part in a broader boost to consumer confidence that would help revive the economy.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Emergency call 'started off dumb, but got pretty serious'
Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'
Animal welfare charities have urged the boy band to cut the scenes
Thought you'd seen it all after the Jeremy Paxman interview?
Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent
"History is violent," says the US Army tank commander Don "Wardaddy" Collier
Argentinian scored 'rabona' wonder goal for Tottenham in Europa League – see it here
Mark Dampier: Woodford’s young companies could be the stars of the future
10 tips for taking out a personal loan
You'll need £220,000 for a minimum wage in your retirement
Questions of Cash: Something rotten in the cellar causes trouble up above
Weekly Money: round-up of the personal finance stories you may have missed 20-24 October
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
- 4 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
- 5 Of course, teenage girls need role models – but not like beauty vlogger Zoella
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
iJobs Money & Business
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...
Competitive (DOE): Guru Careers: A COO / Chief Operating Officer is needed to ...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village