House prices to fall '10% in 2008, 3m in negative equity'
House prices could fall by as much as ten per cent this year and will not recover for five years, MPs heard yesterday, with three million families facing negative equity in a year.
Addressing parliament Liberal Democrat shadow chancellor Vince Cable painted a dour picture of the UK housing market - even citing rumour mongers that house prices could fall as much as 30 per cent.
He said: "According to the Nationwide's estimate, we have had five months of continually falling average prices.
"We have a forward market for property, which suggests that prices will fall by ten per cent this year and that, in five years, they will not increase at all - in other words, they will fall substantially in real terms."
Mr Cable added: "Some forecasters are talking about falls of 25 to 30 per cent in a couple of years."
However, his claims have been called into question. Katie Tucker, technical manager at mortgage broker John Charcol, said remortgaging still made sense even if house prices fall.
"Even if property values have fallen by 5.4 per cent, as much as they have risen by last year, then you're only roughly back at the loan-to-value where you started, and should plan accordingly," she said.
"Overblown figures [of house price falls] can be a dangerous source of panic to the nation, particularly when they are purely estimations based on a very volatile market.
"What is important is that MPs start to get the message out to their constituents that mortgage experts have been saying for some time: that re-prioritising needs for this year and living within your budget is key now, followed by overpaying your mortgage and reducing debt where possible."
Cable said yesterday figures from the Budget point to decreased stamp duty receipts of £800 million, suggesting a big fall in property transactions.
He also claimed three million homes could face negative equity.
"The Council of Mortgage Lenders (CML) confirms three million families currently have properties with a loan-to-value ratio of more than 90 per cent," Mr Cable said.
"If the numbers I have cited, such as the ten per cent fall in a year, materialised, all those families would be in negative equity in a year. That is happening to many people now."
Part of the problem, Mr Cable suggested, was "a great deal of reckless lending" which had occurred, with income multiples over 3.5 times salaries or up to 125 per cent of the value of their properties.
He also highlighted the remortgage shock many homeowners are expected to face.
"There is a specific category of 1.4 million families who have taken the two-year, fixed-rate mortgages - teaser mortgages, as they are called - and now have to renegotiate them," he said.
"Many find they cannot raise the capital, that high deposits are being demanded of them or that even if they can raise the money, their interest rates are increasing from four per cent to 7.5 per cent. That is only on the mortgage.
"Many were given unsecured loans, which are increasing to 15 per cent, as a part of the package. The position is therefore unsustainable for many of those 1.4 million families."
In the event of a house price crash Mr Cable suggested banks should be forced to face tougher requirements when trying to repossess property, with all options including shared ownership being attempted, and that social housing providers could act as "buyers of last resort".
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