Fears over global housing crash

THE alarming spectre of a worldwide crash in house prices will be on the agenda at a top-level meeting of regulators and central bankers in London, Financial Mail understands.

Fearful of the potentially catastrophic fallout from any bursting of the worldwide property bubble, the ten-nation Financial Stability Forum is to examine the issue at a meeting on 8 and 9 September.

The forum, set up in the wake of the Far Eastern economic meltdown in the late Nineties, will also look at the wider issue of heavy individual indebtedness in developed countries and the threat it might pose to smoothly functioning markets.

Forum members will be the guests of Chancellor Gordon Brown, Bank of England Governor-Mervyn King and Callum McCarthy, chairman of the Financial Services Authority.

While Britain has a tradition of house price speculation, the habit has spread around the developed world in recent years, fuelled by low interest rates and a distrust of stock market investment after years of poor returns.

In America, house prices have been rising by an average of more than 12% a year, with double-digit annual increases seen also in France and Spain. Australia's property market, which like Britain's is now cooling, has seen spectacular increases in recent times.

Analysis by Your Mortgage magazine last week predicted a 3% fall in London house prices next year. There are fears that steep falls in prices around the world could usher in recession.

The forum's agenda is also likely to include the danger of excessive regulation of financial services in the wake of corporate accounting scandals in America and the continuing danger to stability posed by large US government and trade deficits.

By coincidence, the autumn will also see a major crisis-recovery exercise among banks and other financial firms, co-ordinated by the Bank and the FSA.

It will be similar to a dry run last October in which businesses had to survive a fictional terrorist attack on London.