Housing market 'could slip into danger zone'

News: Bank warns of one-in-four risk of crash; fears over plan to dock debtors' benefits; investors to claw back cash from failed bond
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The Independent Online

The odds on a repeat of the 1990s crash in UK house prices could be as high as one in four, according to the investment bank Lehman Brothers.

The odds on a repeat of the 1990s crash in UK house prices could be as high as one in four, according to the investment bank Lehman Brothers.

While there will be steady falls in house prices over the next two or three years - around 7 per cent - the risk of a much sharper slowdown could not be ruled out, said Alan Castle, the bank's UK economist.

Given that homes are currently between 10 and 20 per cent overvalued, it is impossible to rule out a drop of 17 per cent over three years - amounting to a crash, the report said.

And that wasn't all: falling house prices over the next three years could dampen consumer spending growth and force the Bank of England to cut its rates back to 3.5 per cent, it added.

Elsewhere, figures from the Royal Institution of Chartered Surveyors (Rics) showed another month of price falls in February, albeit at the slowest pace for five months. Rics' outlook was slightly less alarming than that of Lehman Brothers: it predicted modest price reductions in the coming months.

Meanwhile, the number of houses on estate agents' books has risen to its highest level in two years, Rics reports - up nearly a third on last year, with buyers now calling the shots.

"More people are waiting on the sidelines [rather than buying] as a result of renewed uncertainty over interest rates," said Rics spokesman Ian Perry. "With the influx of property on the market, buyers are now spoilt for choice."

CAB raises credit concern

Plans to let credit unions and non-high-street loan companies deduct money owed direct from borrowers' welfare benefits have come under fire from Citizens Advice Bureaux (CAB).

The Department for Work and Pensions (DWP) currently allows money owed by claimants to utility companies, landlords and courts to be docked from benefits - before they are even received. In this way, people in debt can control their repayments and stick to a tight budget.

But a proposal put forward by the Treasury to improve access to credit for people with poor credit records by giving third parties, such as credit unions, direct access to their benefits could be counterproductive, the CAB said. The fear is that it will encourage borrowers to take out extra credit and push them deeper into debt.

Strict safeguards were critical, warned the CAB's spokes-woman, Sue Edwards.

"It is crucial the Government sets a reasonable limit on the type of debt and the amount of money that can be deducted from benefits," she said. "People [must be] left with a sufficient basic income to live on."

Eurolife deal reached

Investors in the Eurolife Secured Bond, which failed to return "secure" capital to holders in January, have voted in favour of a company restructuring as the best chance of getting their cash back.

The bond, which also offered annual income, was issued to some 2,300 investors in 1999 and promised to return around £9,800 for £7,000 invested.

However, Eurolife Capital Funding, the company that issued the bond, was unable to repay the money earlier this year. It had to ask investors to vote for either a restructuring, which would give 77p for every £1 originally invested, or liquidation.

It is expected to take about four years for the compensation to be paid out in full.

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