House Values To Lose £20,000 In 2008
In the next 12 months houses will lose on average 10% of their current values. That will equate to knocking almost £20,000 off the value of every home in the UK. In total, this will add up to an incredible £400bn being wiped off the value of property in the country.
Accountants Grant Thornton have come up with the figures, and they warn that the fall in property values will come as another huge blow to the confidence of UK consumers and could have a detrimental effect on the wider economy.
Over the last ten years house prices have more than doubled, and people have begun to live off their perceived wealth, even if they haven't actually cashed in on it - though many have. With that has come a spending boom, and the suggestions are that it has carried on this Christmas. This has kept retailers happy and has helped to buoy UK manufacturing.
A fall in house prices is likely to have exactly the opposite effect, with homeowners feeling poor rather than wealthy; they will stop spending, leading to problems for retailers and manufacturers, and the unfortunate spectre of job cuts.
Senior tax partner at Grant Thornton, Maurice Fitzpatrick, said the projections were an analysis of the figures based on the 'best available hard evidence'. He said: "It appears that house prices hit their peak in August. We can expect a fall of 3% by the end of 2007, followed by a further fall of 7% in 2008. This would wipe £400bn off the value of UK residential property or an average of £20,000 per household. A 'burn off' of this degree of personal wealth would tend to make people more cautious about borrowing. That would damage any feelgood factor and, potentially, economic growth."
He also said: "The value of a person's home is crucial in terms of the psychology of personal and financial well-being. Just as rising property prices promoted a feelgood factor and spending, so falls could have a powerful opposite effect - causing them to tighten their belts and limit spending."
Although the Bank of England's base rate cut in December was in the right direction, City analysts believe it was nowhere near enough to make a meaningful difference. The cut has not even been passed on to borrowers by many banks and building societies who have just used it to bolster their own cash flows and profits. Meanwhile they have cut the number of mortgages on offer, and property prices and the number of sales have fallen.
Analysts at Capital Economics suggest there could be an even greater fall in house prices, tumbling 5% in 2008 and 8% in 2009, which would erase all the gains of the last 18 months. It has revised its forecast down after previously saying 3% would be lost in each year.
Business leaders also feared that the property market could suffer a 'sharp reversal' in 2008. Confederation of British Industry director-general Richard Lambert warned that a fall in house prices would have serious consequences but added that gloomy talk could cause a worse downward spiral than need take place.
Falling house prices, however, is good news for first-time buyers. Halifax Chief economist, Martin Ellis, said: "A more subdued housing market over the next few years is a positive step for potential new entrants."
Published on January 3, 2008
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