Lenders predict 7% fall in house prices in 2008

21 May 2008
House prices will fall by 7% in 2008 as restricted mortgage lending continues to freeze the housing market, mortgage lenders have predicted.

Trade body the Council of Mortgage Lenders (CML) has revised its previous forecast of 1% falls in light of the slowdown in lending and house sales.

Forecasts for how house prices will look at the end of 2008 have varied wildly, with economists such as Morgan Stanley’s David Miles suggesting a 20% fall over the next two years. And housing minister Caroline Flint was recently left red faced after a sharp-eyed photographer snapped a briefing note she was carrying that stated prices would fall by up to 10% “at best”.

The CML, which represents lenders in the UK, says lending was down by 16% in Easter from April last year.

As a result of less lending, it now believes house prices will by 7% lower at the end of the year than at the end of 2007. It also expects the number of properties bought and sold to reduce by 35% throughout 2008.

And despite barely veiled hints from the Bank of England that rising inflation means interest rate cuts are off the cards, the CML believes the base rate will end the year at 4.75%.

Notes from the Monetary Policy Committee’s May meeting on interest rates shows eight members voted for rates to remain at 5%, while one member voted for a 0.25% cut.

The notes show the Committee felt that rising inflation ruled out interest rate cuts. And while it was acknowledged that the economy was likely to slow, it judged this was necessary for inflation to return to its 2% target in around two-years time.

Michael Coogan, director general of the CML, says: “Over the next few months, lending volumes will get worse before they get better. The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution.”

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