Britain's largest mortgage lender HBOS warned UK house prices will fall by as much as 9% this year.
In its June trading update released this morning, the lender says it expects the UK economy to slow further in 2008, leading to a 45% reduction in transactions from the previous year.
HBOS, which currently writes 20% of new mortgages, has been somewhat buoyed by recent activity – with May a record month for HBOS retail inflows.
However, it expects no relief from the Bank of England, accepting inflationary pressures will restrict the Monetary Policy Committee's ability to reduce base rates below current levels.
The news follows Bank of England governor Mervyn King’s gloomy speech at the Mansion House banquet last night.
King says the UK currently faces its “most difficult economic challenge” for two decades.
“This year, the squeeze on real income growth is likely to mean that both house prices and consumer spending weaken together,” he says.
“Once the adjustment in the financial sector is complete, banks will be able to resume lending.
“But the era of cheap mortgage finance that underpinned the housing market in 2006 and the first half of 2007 is over and, as a result, it is reasonable to expect the ratio of house prices to incomes to fall back, though with real interest rates still low by the standards of the past fifty years, not to previous averages.”IFAonline
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