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Britain facing massive house price crash, warns IMF
Last updated at 15:37pm on 17.10.07
The IMF has warned that Britain's house prices are hugely overvalued and facing a spectacular crash
The world's leading economic forecaster said this afternoon that British house prices are hugely overvalued and face a spectacular crash.
The International Monetary Fund says that British property is even more inflated than in the US before prices plummeted - a disaster that caused turmoil in stock markets and saw many thousands lose their homes.
In its half-yearly health check on the global economy, the IMF singles out three nations at severe risk.
"Housing markets have boomed in a number of fast-growing countries, most notably Ireland, Spain and the UK," it says. London would bear the brunt of any crash.
The words will be alarming to Alistair Darling, who is travelling to Washington tomorrow for his first IMF meeting as Chancellor. Labour plans for re-election could be ruined by a major downturn in the value of property - the biggest investment most people make.
Estate agents have been reporting falling house prices for several months, but have insisted that a full-blown crash is unlikely. The Bank of England has raised interest rates five times since August last year in an attempt to cool inflation and stabilise the economy.
The IMF added: "The extent of house price over-valuation may be considerably larger in some national markets in Europe than in the US, and there would clearly be a sizeable impact on the housing markets in the event of a widespread credit crunch."
In America, the collapse in housing prices and a rise in borrowing costs saw many home owners unable to keep up repayments on mortgages.
Reader views (41)
Here's a sample of the latest views published. You can click view all to read all views that readers have sent in.
The property boom is built solely on a massive, worldwide credit expansion that has now ended. The powers that be should have seen this coming a long, long time ago but were more than happy to take the plaudits of 'no more boom and bust'.
As a homeowner with a realtively low mortgage I am not talking through any pocket of any kind. But if anyone seriously believes the property market is anything other than a bubble waiting to pop, I suggest they think again. Credit for those with impaired credit histories are no longer available (at any price!) and high loan to value mortgages will be the next for the chop. This means, for first time buyers, much bigger deposits and for those remortgaging the possibility of standard rate mortgages at 7% to 8% for the forseeable future instead of 4.5% fixes.
Neither the mainstream press or the people on the streets seem to realise the gravity of the credit crunch - and it's not going away anytime soon. It's the trigger that will bring the property market and, very possibly, the economy falling back to earth - with a rather large bump!
- Rob, Isle of Wight
We've had 10 years of boom, is it such a shock if we went into a bust? Time to reduce and offload unnecessary financial risks if you havent already, and have a plan B just in case. Its not rocket science!
- I, London
I recently left the UK for Canada, the unaffordability of decent houses one of the main reasons for going. As first time buyers here, my girlfriend and I now have a three-bed detached house with garage in a nice area that cost 2.5x our combined incomes; a few months ago one of my relatives bought a two-bed flat in the South-West of England in an OK area... it cost more than our house did, and, I believe, around 4x their combined incomes.
How can anyone not believe that British houses are ludicrously overpriced if they've compared prices to the rest of the developed world? It's well past time for prices to crash so that FTBs won't be forced into slavery to the banks for the rest of their lives to buy even the lowest level of housing.
As for a crash hurting everyone, it will be far worse for those who've ridden the credit boom than it will be for the majority of the population who just want to be able to buy an average house on an average income. Even here in Canada if there was a price crash I'd be able to sell and move up to a better house for less money than it would have cost six months ago. So bring it on.
- Mark, Saskatchewan, Canada
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