Record fall in house sales predicted

This year will see fewer completed home sales than ever before, as confidence in the market continues to fall, making affordable mortgages harder to come by. That is the prediction of many housing market analysts.

Ed Stansfield, property economist at consultancy firm Capital Economics, said: “I think it’s striking that the number of new mortgage approvals is already below the recession levels of the early nineties.”

Capital Economics are forecasting a 40% fall in completed house sales during 2008, to just 750,000 – the lowest figure on record. They also expect house prices to fall by 35% by 2010.

It is unlikely that interest rates will be cut to relieve the pressure on borrowers, as inflation remains well above the 2% target set by the government.

Some investors believe rates might even be increased before the end of the year.

The Bank of England is due to give its assessment of the problems, described by governor Mervyn King as ‘the great unwinding’, when it publishes the quarterly Credit Conditions Survey next month.

Asked about the report, the chief UK economist at Citigroup, Michael Saunders, said it is “likely to show a further marked tightening in lending standards”. He added that there are 78% fewer mortgage products available to borrowers compared with last summer’s pre-credit crunch peak.

In the past, housing slowdowns have lasted up to five years from peak to trough. Many estate agents are already beginning to cut costs, faced with the prospect of continued decline.

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