House Prices To Fall In 2008

Houses will lose on average 10% of their current values over the next year, which will be the equivalent of wiping £20,000 off the value of every home in the UK. In total, this will add up to an amazing £400bn being knocked off the value of property in the country.

The figures come from accountants Grant Thornton who they warn that the fall in property values will be another massive blow to UK consumer confidence and could have an impact on the wider economy.

House prices have more than doubled in the last ten years, giving people a sense of wealth and well-being. A spending boom followed keeping retailers happy and boosting UK manufacturing.

A fall in house prices would mean the opposite effect, with homeowners feeling poor and stopping their spending, leading to problems for retailers and manufacturers, and the possibility of job cuts.

The projections were an analysis of the figures based on the ‘best available hard evidence’, according to senior tax partner at Grant Thornton, Maurice Fitzpatrick. He said: “It appears that house prices hit their peak in August. We can expect a fall of 3% by the end of 2007, followed by a further fall of 7% in 2008. This would wipe £400bn off the value of UK residential property or an average of £20,000 per household. A ‘burn off’ of this degree of personal wealth would tend to make people more cautious about borrowing. That would damage any feel-good factor and, potentially, economic growth.”

He also said: “The value of a person’s home is crucial in terms of the psychology of personal and financial well-being. Just as rising property prices promoted a feel-good factor and spending, so falls could have a powerful opposite effect – causing them to tighten their belts and limit spending.”

Capital Economics analysts suggest things could be even worse with house prices falling 5% in 2008 and 8% in 2009, thereby erasing all the gains of the last 18 months. The company has revised its forecast down after previously saying 3% would be lost in each year