House buyers demanding 20% discounts on homes as market continues to sink

Buyers are demanding discounts of as much as 20 per cent on houses, according to the Bank of England.

The huge reductions underline the dire state of the property market as the credit crunch shows no sign of abating.

In a worrying report, the Bank warned that the dearth of mortgage lending is driving buyers and sellers even further apart when they haggle over prices.

'Uncertainty regarding valuations was
discouraging potential buyers, some of whom were reported to require discounts of at least ten to 20 per cent off the asking price,' said the Bank.

'Mostly only forced sellers would accept discounts of that magnitude.'

The report, based on research by the Bank's regional representatives, also revealed that a growing number of buyers who have ordered homes directly from builders are pulling out.

Many are choosing to sacrifice their ten per cent deposits rather than buy in a falling market, said the Bank.

Potential buyers are increasingly adopting a wait-and-see approach after warnings that house prices could plunge by as much as 30 per cent this year and next.

News that more potential homeowners are getting cold feet comes as housebuilders warned that trading conditions were now the most challenging in recent history.

Persimmon, which trades as Charles Church, today said pre-tax profits for the first half of 2008 had tumbled by nearly two thirds.

The fresh signs that the housing market is grinding to a halt come a month after the Council of Mortgage Lenders reported a 27 per cent plunge in lending, and warned of 'subdued levels of lending' over the remainder of 2008.

However, the Bank of England looks increasingly likely to deliver a much-needed interest rate cut by the end of the year. Policymakers on its rate-setting committee remained divided for the second meeting in a row when it held rates steady earlier this month, it said yesterday.

However, the Monetary Policy Committee signalled that the inflationary menace will start to recede over the coming months as a lower oil price feeds through to the broader economy. In the minutes to the meeting, the MPC said: 'The upside risk to inflation in the short term had probably eased a little'.

A steeper-than-expected slowdown in the economy in the second quarter is also expected to 'bear down' on inflation, it said.

Experts say the shift in emphasis paves the way for the Bank to begin slashing rates.

Jonathan Loynes at Capital Economics said: 'With inflation close to a peak and the economy heading towards recession, we still think rates could be falling by year-end.'

Lower internet rates could help dispel the deepening gloom hanging over corporate Britain.

In a monthly survey, the Confederation of British Industry said manufacturers now expect to slash production at the fastest rate in nearly seven years.

Ian McCafferty, economic adviser to the lobby group, said: 'Domestic conditions remain sluggish and the recent slowdown in the eurozone economies is starting to make conditions tougher for exporters.'