House prices expected to fall, says CEBR

The Centre for Economic and Business Research has admitted it is nervous at the scale of continued house price inflation.

Taking the latest views on economic prospects into account, the research body has said it is now more nervous about UK economic prospects and that house prices have risen so far even faster than they had originally predicted. The CEBR adds that it now expects UK interest rates tol be lower than at present for the next three years.

Even with rate cuts house price inflation is expected to decelerate rapidly. From a forecast peak of 25.6% in November on the Halifax Index we expect a fall to 2.6% by the first quarter of 2004. The driving forces are likely to be the growing problem of affordability and the increasing supply of housing on the market.

However, some good news for homeowners is that the CEBR does not expect a general year-on-year fall in house prices, though this will occur in some areas such as Central London, where prices are down about 10% year-on-year.

The CEBR adds that it expects UK households will withdraw £39bn from their mortgage equity in 2002, financing 5.9% of consumers&#39 spending compared with 3.8% in 2001.

CEBR spokesman Mark Pragnell, says: “Our forecast that house price inflation will fall implies that equity withdrawal will also diminish – we predict that it will pay for 5.4% of consumers&#39 spending in 2003.

“Although this total remains high, the fact that the ratio is falling means that it will be a negative factor for consumer spending growth which we expect to slow sharply to 2% or less. Retailers will need to beware of consumer spending growth grinding to a halt.”