House price outlook gloomy
CONFIDENCE in the property market has plunged to its lowest level in 16 months as investors predict a house price slump of up to 40%.
A Woolwich survey found that only 52% of homeowners think their property will increase in value - down from 67% in May when three base-rate increases had cooled the market.
The Bank of England provided fresh evidence that homeowners are becoming more cautious. People took £15bn cash out of their homes by increasing mortgages through equity release schemes in the three months to the end of June.
That is a 2.5% drop on the previous quarter. Investec economist Philip Shaw thinks the next three months will be a 'real shocker' as the figure plummets.
But big mortgage lenders Halifax and Nationwide still reckon the housing market will gradually cool.
The gloom means the Bank's monetary policy committee, which meets today, is all but certain to leave interest rates at 4.75%.
Fund manager Neil Woodford at Invesco Perpetual is ultra-bearish. He forecasts a 30%-40% fall in house prices in the next three to four years and is steering his investments out of construction stocks and into defensives like tobacco.
Consultants at Capital Economics say the signs of their long-forecast 20% fall in prices have started to appear.
Chief UK economist Jonathan Loynes says even that slump will reverse only a fifth of house price gains made since the mid-1990s.
Wales, northern England and the Midlands are the most overheated regions.
Loynes warned that house price falls could hit the rest of the economy. He said: 'The impact of consumer confidence is difficult to predict. The MPC will have to be on its toes.'
PricewaterhouseCoopers says there is a greater risk of a bumpy landing for house prices in the UK than in euroland.
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