Worldwide credit crunch will hit homeowners the hardest

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by Kay Murchie

Jim O’Neill, chief economist at Goldman Sachs, has warned that UK homeowners will suffer the most as Britain takes the biggest hit of the worldwide credit crisis.

Out of all the world’s economies, Britain is likely to be the worst affected. According to Mr O’Neill, the UK has a heavy reliance on financial services and was in the eye of the storm of a deleveraging world economy.

Mr O‘Neill, who is renowned for making far-sighted calls, warned that the ensuing slowdown will be passed on to homeowners.

The news comes as the Nationwide said that UK property prices are lower than they were a year ago.

Prices dropped by 1.1% in April, the sixth consecutive monthly fall, and were down 1% from the levels seen compared with April last year according to the Nationwide. The fall represented the first for over a decade.

Last year, Mr O’Neill predicted the collapse of the US property market which subsequently sparked the sub-prime mortgage crisis. Mr O’Neill said the UK mortgage market is effectively frozen.

He added that house prices are going to go through negative changes and it’s going to be a challenge for UK policymakers.

Goldman Sachs is forecasting that the UK economy will slow to an annual rate of growth of 1.8% this year and in 2009, down from 3% in 2007.