Economist predicts 20% drop in UK house prices

A senior economist at investment bank, Morgan Stanley, is predicting that UK house prices could fall by up to 20% over the next two years.

Professor David Miles has based his forecast on derivatives provided by brokers, Tradition Group, and describes himself as “at the pessimistic end of the spectrum”.

However, he does not view such a fall as catastrophic because there will be “as many gainers as losers”.

He believes the winners will be first-time buyers and those on lower salaries who will finally be able to afford to buy.

The average UK house price currently stands at around £200,000 but could fall to £160,000 by the end of 2009, if Professor Miles is correct.

Meanwhile, storm clouds continue to gather over the property market, with the Citizens’ Advice Bureau reporting a 35% rise in those seeking help with mortgage arrears in January and February of this year.

Banks and building societies continue to withdraw their best deals at short notice and yesterday, Halifax, the UK’s biggest mortgage lender, replaced many of its existing mortgages with new deals carrying higher interest rates or set-up fees.

At the beginning of the year, the Financial Services Authority warned that up to one million homeowners could be at risk of mortgage arrears and ultimately, repossession.

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