The Governor of the Bank of England, Mervyn King, has warned that property prices could fall in real terms over the next four years. If house prices stagnate or rise below the level of inflation then their real values will fall.
He said: “The central view in this forecast is, looking several years ahead, there’s no reason to expect house prices to be markedly above where they are now. It’s conceivable there might be falls in house prices, but broadly speaking we’re looking at quite a long period now of stability in house prices, and that would enable there to be quite a marked adjustment in the ratio of different measures of affordability, such as house prices to earnings for example. Four years of broadly flat house prices would mean a fall in 20% in the ratio of house prices to average earnings. So you can get quite big adjustments in the housing market without having to see large falls in house prices.” He added: “None of us know what will happen to house prices.”
Mr King was speaking after the release of the Bank’s quarterly inflation report, and he also said that with the pressure on inflation interest rates were unlikely to fall as far as many experts had predicted.
All recent surveys – Halifax, Nationwide and RICS – have indicated further falls in the housing market and Council of Mortgage Lenders’ figures showed that October to December had the lowest last quarter lending for house purchases since 1995.
Some experts have advised borrowers to overpay on their home loans if they can on variable rate mortgages when they come down. The benefit of this will be to enable them to pay off their mortgage earlier or give them some leeway when times might be harder in the future.
Katie Tucker of mortgage broker John Charcol said that borrowers who have managed to keep up with rising mortgage payments over the last couple of years should keep their payments high even if the requirement is lower. This can reduce the capital left to pay, and thereby reduce the term
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