Rics warns of 40% drop in house sales

The Royal Institution of Chartered Surveyors (Rics) has warned that house sales could fall by over 40% during 2008.

According to Rics chief economist, Simon Rubinsohn, housing transactions have declined by 31.7% year-on-year since January.

He is expecting the second half of the year to prove a difficult period for the market because potential first-time buyers and homemovers will be unable to secure loans.

Mr Rubinsohn points out that this could have important consequences for the wider economy because of its impact on the retail sectors related to the property industry.

Falling house sales could result in a downturn in consumer spending of up to 8%, which would affect a wide range of businesses, including financial intermediaries and High Street retailers of home furnishings and white goods.

Property website, Rightmove, is raising similar concerns for the retail sector and blames tighter lending criteria for crippling house sales.

However, Rics remains confident that UK house prices will only have fallen by around 5% by the end of the year because the fundamentals of the UK economy and demand for property remain sound.

The Institution expects repossessions to rise to around 43,000 in 2008, well below the levels of the early 1990s, when negative equity pushed repossession to around 77,000 a year.

Rics data shows that between 2005 and 2007 the average loan-to-value ratio stood at around 85%, compared with 90% in the period between 1985 and 1989.

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