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Sunday 18th of October 2009
October 18, 2007    

IMF report warns of UK property price crash

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by Gill Montia

The International Monetary Fund (IMF) has issued a report warning that the UK could follow in the wake of the US, in terms of a house prices crash.

The IMF believes that the global credit shortage could impact severely on the over-valued UK property market.

The report takes the form of a half-yearly overview of the global economy, and points out that the housing market in the UK is even more over-priced than the US market before values began to fall.

The IMF model for such forecasts looks at house price increases in relation to economic fundamentals, such as lower interest rates, the rise in the number of single-person households and rising incomes.

When that model was applied to US prices at their peak, it indicated that they had risen by about one-third more than explained by fundamentals, and the IMF maintains that the over-valuation in the UK is even more pronounced.

The report concludes that “taken at face value, the estimates suggest that a number of advanced economies’ housing markets outside the United States could be vulnerable to a correction.”

It does, however, acknowledge that the five increases in interest rates from the Bank of England since August 2006 had already contributed to “some cooling” of the UK property market.

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