Househunters expect price falls

MORE than one in three househunters believes that house prices will fall in the next 12 months. Their pessimism has been triggered by four interest rate rises since November, according to a survey by national property website assertahome.com.

The monthly survey was carried out just before last Thursday's decision by the Bank of England's monetary policy committee to keep interest rates at 4.5%.

In January, when interest rates were 3.75%, only 10.5% of respondents thought prices would fall over the following 12 months. Now, 34% believe they will fall.

Pessimism, says assertahome, is highest in the South East, South West and East Anglia, where house prices have risen the furthest over the past five years. In contrast, those living in Yorkshire, the North West and Scotland are much more confident that prices will keep going up.

The survey is the latest evidence suggesting that the housing bubble could burst. Bank of England Governor Mervyn King warned earlier this month that there was a greater risk of a fall in house prices and urged first-time buyers to be cautious.

King's comments caused such turmoil that the Treasury was forced to reassure the public, with Chancellor Gordon Brown saying that the Governor was not predicting a collapse.

Unperturbed by Brown's comments, King told the Treasury Select Committee that homeowners should not expect the value of their properties to rise for ever.

Last week, King's comments were strengthened by a survey from accountants PricewaterhouseCoopers which said house prices could drop between 10% and 15% in the next four to five years.

It said houses were massively overvalued and that the average price of £150,000 could drop £22,500 by 2009.

Jim Buckle, managing director of assertahome, said: 'Even before June's interest rate increase, househunters had begun to reduce their expectations for the housing market.

'Confidence is a leading indicator for the housing market and our survey began to pick up a cooling trend before it became apparent in house price data.'

He added: 'The Bank of England's June rate rise and Mervyn King's subsequent tough talking on house prices shocked consumers.

'With interest rates on hold at the latest monetary policy committee meeting, we now expect sentiment to steady and confidence to recover modestly from this low level. However, we strongly believe that further aggressive rate rises risk destabilising the whole market.'

Another indicator of growing nervousness is seen in the unwillingness of househunters to stretch themselves to buy. According to assertahome, the yardstick of what people are prepared to pay dropped from an average 4.7 times annual income in May to 4.5 in June.

'This is yet more evidence that the housing market is moderating,' said Buckle. 'A new sense of realism is certainly to be welcomed because it will help ensure long-term stability.'

Though pessimists are in the ascendancy, not everyone believes that prices are about to crash.

Ray Boulger of leading independent mortgage broker Charcol believes that recent interest rate rises should result in a 'soft landing' for the market.