House prices could fall 10% this year according to Lib Dems

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by Kay Murchie

Liberal Democrat shadow chancellor Vince Cable said UK property prices could fall by as much as 10% during 2008.

He added by next April three million British families could be plunged into negative equity (where your home is worth less than your mortgage). The Council of Mortgage Lenders (CML) confirms three million families currently have properties with a loan-to-value ratio of more than 90%, said Mr Cable.

He painted a gloomy picture of the UK housing market, even citing rumour mongers that house prices could fall as much as 30%.

According to the Nationwide’s estimate, we have had 5 months of continually falling average prices, said Mr Cable.

We have a forward market for property, which indicates that prices will fall by 19% this year and that, in 5 years, they will not increase at all. In other words, they will fall substantially in real terms. Some forecasters are talking about falls of 25 to 30% in a couple of years.

However, Sunday Times economics editor David Smith, said chances of a recession or house price crash are slim.

Mr Smith was addressing the 20th annual conference of the Chartered Institute of Housing (CIH) and warned against putting too much emphasis on gloomy prospects of the higher costs and lower availability of credit.

Noting the strong and unusual rise in house prices during the last 10 years, Mr Smith predicted that property prices would have to fall quite a lot before we saw the return of negative equity.

Earlier this week, the Land Registry revealed house prices remained static during February.

Katie Tucker at mortgage broker John Charcol said overblown figures of property price falls can be a dangerous source of panic to the nation, particularly when they are purely estimations based on a very volatile market.