House prices could fall 40% from 2007 peak

It said that prices would plunge by 32% from their peak in the third quarter of 2007 to their trough in the first three months of 2010 if the Government’s bank bail-out failed.


To stop the price crash mortgage approvals must rise from the current figure of 32,000 a month to 50,000 a month by next year.

If the bail-out fails, the property market is likely to stagnate through 2010 and 2011. At worst house prices could remain below their 2003 levels until 2013.

The CEBR warns that the average house price could be as low as £139,000 in five years’ time – just £1,000 more than the average price at the end of 2003.

Benjamin Williamson, report author and CEBR economist, said: "The glimmer of light at the end of the tunnel for the beleaguered housing market is that prices and interest rates are now at levels whereby any improvement in lending is likely to lead to substantially increased activity and at the very least a bottoming out in house prices.

"However, if lending remains close to current very low levels, the spectre of the biggest annual drop in UK GDP since post-war demobilisation in 2009, with concomitant rises in unemployment and collapsing confidence, will likely lead to an acceleration in house price falls."

Ben Read, managing economist at CEBR said: "We now stand at a point where direct Government intervention to increase the level of mortgage availability – such as new issuance of mortgage-backed securities – will certainly stimulate housing market activity and stem falling prices."

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