PM and Chancellor play down fears of house price crash

Permalink: PM and Chancellor play down fears of house price crash
by Kay Murchie

Yesterday, Chancellor Alistair Darling tried to calm fears of a house price crash. He said there will be a slowdown this year but said he thinks it is important that we try to manage through these things.

The Chancellor insisted the economy was ’strong’ following news that the International Monetary Fund (IMF) cut its forecast for economic growth in Britain.

IMF’s World Economic Outlook report predicts expansion of just 1.6% this year and in 2009 in Britain. This figure is short of the 2% prediction made by Mr Darling in his first Budget last month and would represent the weakest performance in 15 years.

The Chancellor added that he was optimistic that provided we stick to the course we have set our economy will continue to grow as it has done over the last decade.

The IMF has warned that property prices could slump across Britain by as much as 10% because UK houses are overvalued by 30%.

Prime Minister Gordon Brown added that the slump in the UK housing market is containable after the Halifax said house prices fell by 2.5% - the biggest margin since the early 1990s crash.

The PM said we’ve seen house prices rise by about 180% over the last 10 years and they have risen by about 180% over the last three years, so a 2.5% fall is something that is containable.

The PM acknowledged a difficult situation but said the UK was better placed to cope than in previous slowdowns.

There are now just 4,270 different mortgage deals on the market, compared with 15,599 last July.

Yesterday, former HBOS chief executive Sir James Crosby, was appointed by The Treasury to lead an emergency review of the mortgage market. His brief is to stop mortgage offers from drying up through measures to boost lending between institutions and to increase the range of investors in the field.

Yesterday, homeowners in London were warned that it will take 3 years for the market to recover fully. A report from property advisers Atisreal and Professor Patrick Minford forecast that prices in London would slump this year and next before rising slightly in 2010. Professor Minford said this is not a crash but it is a correction.

Many had believed that the London housing market would be immune to house price falls but the report states otherwise.