Over the next five years house prices are expected to continue falling, signalling potential debt problems for many householders, according to a leading economic think tank.
The Land Registry announced that March saw the largest monthly drop in house prices for two years, whilst the National Institute of Economic and Social Research (NIESR) reported that inflationary pressures would erode any rises in house prices over the coming years.
NIESR’s prediction comes on the back of a forecasted 5% fall in house prices for 2011 from Standard & Poor, as Chancellor George Osborne’s austerity measures come into effect – deterring would-be buyers from taking the plunge.
Forecasters at NIESR said: “We expect the housing market to remain weak over the coming three years.
“House prices have been overvalued for much of the past decade, but with current low borrowing costs they look about right. However, borrowing costs are likely to rise over the next five years as policy rates set by the Bank of England move from crisis levels near zero to normal levels of around 5%. These increases are likely to induce real house prices to fall by around 2% a year for the next five years.”
Jean-Michel Six, Standard & Poor’s chief economist for Europe, said:”We anticipate that the UK housing market will drift sideways in the coming 18 months, with prices shedding about 5% this year and roughly flat in 2012.”
In the face of other large public sector cuts, some economists expect prices to drop even further, speculating that in real terms house prices could fall by as much as 20% over the next five years.
For people who have continually used the equity in their property to fund their lifestyle during the housing boom, this signifies potential debt management issues – as consumers will either have to reign in spending to an affordable level or risk developing severe debt problems.
