Value of homes could drop 9 per cent this year, top mortgage lender warns

The average home could fall in value by almost £18,000 this year, Britain's top mortgage lender warned yesterday.

The Halifax said it fears prices could plunge by up to 9 per cent.

It is the third time this year the bank has slashed its house-price forecast, a sign of the rapid decline in the state of the housing market.

In December, it said prices would be 'flat' at zero per cent. In April, it downgraded the forecast to 'low single-digit' falls.

Weeks later, in May, it revised its predictions again to a 'mid single digit' fall, before fast-moving events brought it to yesterday's figures.

It means the price of the average home could fall from £197,000 at the start of this year to £179,500 by the end of it. The bank's own figures showed recently that house prices are falling at their fastest rate since records began 25 years ago.

The scale of the market fall in the past few weeks has forced many experts to make this year's forecasts much bleaker.

Capital Economics expects prices to fall by a third by 2010.

The Council of Mortgage Lenders had said prices would rise by one per cent this year, but now thinks they will fall by 7 per cent.

Separate figures from the CML yesterday showed mortgage lending levels have slumped nearly 20 per cent from this time last year, with the market set to remain 'very weak' for the next few months.

Halifax's trading update, published yesterday, also said it expects a third of its mortgage customers to 're-price' this year. For the majority, this will lead to them paying more for their home loans.

All banks and building societies have increased their rates recently, with some deals now charging the highest rate for a decade.

Bank of England governor Mervyn King warned this week: 'The era of cheap mortgage finance is over.'

In 2006, a homeowner could have taken out a two-year, fixed-rate loan with Halifax at 4.39 per cent.

When the deal runs out this year, the rate on a new two-year fixedrate loan is likely to be 6.19 per cent.

This adds £165 a month  -  or nearly £2,000 a year  -  to the cost of repaying the average £155,000 loan.

Tory Treasury spokesman Philip Hammond said: 'This is bad news layered on bad news and it adds to the gloom that hard-pressed families are feeling.

'Rising borrowing costs, soaring prices and stagnant earnings are combining to squeeze living standards as the credit crunch bites further on an ill-prepared nation.' The National Association of Estate Agents said its members each have on average 97 homes for sale, the most since records began.

Evidence emerged yesterday of the financial strain higher mortgage costs are causing homeowners.

The number of people falling behind with their Halifax mortgages has risen sharply.

In December, 1.67 per cent of its loans were at least three months behind with repayments. By the end of May, the figure had jumped to 1.89 per cent, equal to about £4.4billion of loans in arrears.

There are fears that mortgage costs could climb further after Mr King said he would take 'whatever action is needed' to cut inflation.

The CML's latest figures continued to show a fall in the number of loans. In May, its members lent £25.5billion, nearly 20 per cent down in a year.