Bleak House Price Outlook

Both Nationwide and HBOS have a bleak outlook for house prices in the next two years. More people are falling into mortgage arrears and recession remains a risk. Nevertheless HBOS see enough stability for the Bank of England’s MPC to keep interest rates relatively unchanged in 2008.

Nationwide, Britain’s biggest building society, said that house prices are now down 8.1% on this time last year. This is the biggest annual fall since data collection started in 1991.

This was joined by a forecast from HBOS that house prices would fall by between 15% and 20% by the end of next year. In addition there was an even bleaker outlook from City analysts who predicted that there would be a 30% drop in house prices by 2010, with serious downside risks to the economy as a whole.

The Nationwide has now seen nine months of successive house prices falls, and there seems no immediate likelihood of a turnaround in the trend. According to the building society they average price of a home is now £169,326 – around £15,000 less than a year ago. Chief economist Fionnuala Earley said that there was a rising risk of an economic recession in the UK.

Looking back three years, Nationwide’s house prices are still £11,000 higher, but the monthly fall of 1.7% in July was twice the rate in May, which may suggest the slump in property prices is actually speeding up.

HBOS said there could be a 20% fall in house prices through this year and the next, and said that the number of its customers in mortgage arrears has risen to 39,300 from 35,600 at the start of the year. It commented that the slowing housing market and reduced availability of credit now formed part of a wider economic slowdown.

However, HBOS saw enough signs of stabilisation to allow the Bank of England’s Monetary Policy Committee to keep interest rates to remain relatively unchanged for the rest of 2008.

According to ratings agency Standard & Poor’s, 1.7m home owners could fall into negative equity should house prices drop by another 17%.