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What does that do to Northern Rocks mortgage book and any prospects of the British taxpayer getting their money back; when is the interim statement due?
Shame Mr Darling hadn't done "due diligence" before he nationalised the company rather than buying it on "Ebay".

The sooner the market returns house prices to their correct level the sooner financial stability will return to all of us. Bring on the correction.......a quick sharp shock!

A further 2 years of inactivity in the housing market then? That’s a lot of non trading of various companies in different industries. That in itself should ensure a recession.

Lovely Juvely Labour, although I'll admit that when Cameron takes up office it will be a case of more of the same. i.e. Do what your told and pay your taxes subjects (except with high interest rates which in itself is just another tax)!

If Sir Win is right, it seems likely that the financial sector will be in difficulty for some time ahead prompting the thought that Northern Rock may not be the last or the largest failure the Treasury has to address.

There is a case to be made that the banks got themselves into this mess and that they must sink or swim as best they can, but what happens to the hapless investor? The IndyMac and Bear Stearnes events and the propping up of Fanny May and Freddie Mac suggest that this school of thought cannot prevail this side of the Atlantic either.

It may be that part of the answer lies with the Bank of England rather than the Treasury. A more proactive role using interest rates as a tweaking mechanism in the manner of the Fed could have two advantages over and above stimulating the wider economy. Lower interest rates would mean fewer defaults on mortgage repayments reducing the likelihood of another Rock while, if - as now seems likely - the Treasury is going to depart from its own borrowing rules, at least the cost of that borrowing will be lower.

Could it be that increased public borrowing would be much more effective if coupled with a more flexible approach to inflation targets. The answer to that one lies in what the government wants the money for - prudent investment in capital projects or tax giveaways. Once again, the choice is stark. Is this a government committed to avoiding an economic meltdown or a party committed to avoiding electoral disaster.

Don't hold your breath.

First - it is common sense that house prices will fall. One only needs to look at house prices in continental Europe to see that the UK market is still at least 30-40% overvalued. Not to mention that most of the UK housing stock is crap by comparison, as shown by the energy ratings that are now a part of HIPs. Second - what I find fascinating is the explanations the media give for the price fall. Normally, it is attributed to the current "unavailibility of mortgages". And why would they be "unavailable"? Because buyers don't have the necessary cash or earnings to secure a mortgage at the inflated prices that have been common over the past few years. And because banks have realised that a further 10-20% fall is likely and protect themselves by demanding deposits. In short, the current downturn is not caused by an "unavailibility of mortgages" but by the realisation that British houses won't be worth that much in the long run, especially if mortgages are once again funded through bank deposits. This will be necessary now that international money markets have realised that UK housing is too risky a proposition. It is perfectly conceivable that anyone who has bought a house in the last three years and is going to buy one in the next two years will still be sitting on a real-terms loss in 10 years time. Unless the Gov't helps the housing industry via various Bank of England interventions, which will cause massive inflation. I really hope the price falls continue. Anyone who has staked their career or future on this bubble was simply naive to think that this would be sustainable. Please don't go running to the Gov't for help.

2 years down, to say 30% off the peak and then flat for 3 years than up with wage inflation say 2 % per annum - unless some 'wise' bankers find a inventive way to make insane loans that is.

(These assumption make it 2029 to return to present levels. 3% = 2023, 4% = 2020, 5% = 2018, 6% = 2017 - implication get used to it., even 10% = 2015. 10 % is a long term 100 year average from my grandfather's house 1908 -2008)

The only reason bankers do this is for the benefit of their annual bonus! There is a serious disconnect between banking pay structures and what is good for the banks and the economy.

Banks are so well protected from the real economy by regulation that they will be free to do this again unless some serious regulatory action on their pay and bonuses is taken - I can see no other way to stop the insanity returning.

@threnodio

The BoE doesn't have the same level of inflationary protection the Federal Reserve has (oil is traded in dollars, and that provides the US with a major safety net), and inflation is one thing that will cause longer term damage than a mid/short recession will.

Reducing the base interest rate may give the economy a boost - although given external pressures not as big as one as you may expect - but at the risk of greater inflation, and hence greater long term damage to the economy.

Recessions happen, economies decay - there's no avoiding that, it's all part of a cycle, all any sane government can do is have reserves for when that happens to mitigate the effects.

Sadly, Browns arrogance - his foolish claim to end boom and bust - has ensured Labour has no reserves. All spent up :(

We'll have a recession for a couple of years and bounce back, hopefully with the lesson finally learned that you can't end boom and bust, talk of a depression is just hyperbole.

Reckless lending on housing caused this entire mess on both sides of the Atlantic.
You'd think that the banks would have learned a bitter lesson in the early 90s.
Stability...thats all that was needed.
But no, and now they've lost billions in bad debt, and the public have lost billions in debt and pensions and taxes to pay for it all.
House prices...deadly dangerous when they're out of control. Everybody needs to learn.

@HousePricesWillFall

There are a number of reasons house prices are falling in general - there are regions where they're still climbing.

I too hope house prices continue to fall, however they will eventually increase again - due to the nature of the UK where we have a high population density.

The big losses will likely be on Prescotts babies - the high rises. The clod apparently slept through the 60's and 70's of grim inner city high-rises co-opted to be social housing, and history is starting to repeat.

Other forms of housing will increase in value simply because of supply and demand, and once banks trust each other again we'll see mortgage products reflecting that, including 100+ year mortgages (you improve your wage, you can pay it off, if not the bank inherits a nice house when you kark it).

Short of a massive economic downturn, and a mass emigration releasing the pressures, most property will only increase in value further over the coming years and decades.

Response to Frank-Castle:

I agree that population density coupled with high employment is a reason to bet on the UK housing market - or rather WAS a reason. Sterling has already lost value (relative to EUR), unemployment is rising fast. It is not unimaginable that there will be an exodus of migrant workers from the UK... The current downturn is already affecting the desirability of the UK as an investment destination, not to mention that there is nothing really to invest in other than housing (a thing of the past) and financial services (many Northern Rock-like banks). You can't just look at supply and demand in the UK, you also have to consider what the relative economic opportunities will be elsewhere, and that will determine where the money flows. On a 5-10 year view I would not invest in UK property, rather rent and get much much more for my money and invest the spare cash elsewhere.

It's interesting how long term fundementals are ignored when short term problems preoccupy people who should know better. No 9 is entirely correct when he points out that the property market will correct in a couple of years back to recent levels. The key fundemental in all this is demand. Housing values in the UK reached 2007 levels because demand was being accomodated with available credit. The credit did not create the fundemental demand. That credit is not now available at either the price or volume to service that demand, but can we say the demand has disappeared? Sure most European property levels have always lagged behind UK levels, but there are land availability, demographic and cultural reasons for that. To me the level of UK ownership of property in France, Spain and even the Accession States demonstrates the average Brits addiction to property ownership.
So we have demand - what's happenning on the supply side? Production is coming to a standstill and will take some time (2 years) to get back to the (inadequate) levels of 2007 and before. So credit is the key. The Banks are rebuilding their capital bases using Dollar based Sovereign funds and any necessary shoring up will be completed this year. That extended capital base will need increases in revenue to service it. Far East trade surpluses continue to build and need a home to go to. I predict that the Banking community, having saved a collossal amount of tax this year, will start reversing (say 25%) the over-pessimistic provisions that their auditors have allowed them to push through in the current panic (better safe than sorry etc etc) to correct a genuine drop in business, but that's a card you can only play once. If we avoid a world recession and mass UK unemployment, we will see the currently missing part of the property value jigsaw (credit) re-appearing before the end of 2009. The only statistic that will matter over the next year will be the total employed figure - if that stays stable - so will demand.
Tony

I agree with posting 11 especially with regard how mass unemployment will affect housing demand. We saw what happened in the 1980's and 1990's!

However I source residential building land for around 500 developers from Manchester to Birmingham to London and would report that the demand for such land has quadrupled in the last 8 weeks. Why? Firstly there has already been a correction in the price of land downwards by between 25-35%. This means developers buying the land now can spend the next 12 months building and then bring their properties to the market in 2009 at prices 15-20% below their current level and still sell them. The only thing that is holding the market back is the availability of funds for mortgages and development finance. Once this eases up house price falls will also ease up and bottom out not unless during this period mass unemployment takes hold..................then we will have a serious recession not a correction to deal with.

By reducing interest rates the Government could reduce inflation. How?

The current inflation target used by the BoE to set interest rates is the CPI which excludes mortgage payments and house prices. If this was changed to the RPI which includes these then by reducing interest rates (thus mortgage rates) and combining this with a future fall in house prices then the "REAL" and honest rate of inflation covering everything we have to buy including housing would fall! A reduction in interest rates would help stop the economy going into recession now. By changing the inflation measurement rule now it would also prevent excessive future house price increases because as they picked up interest rates would rise to cap them! We might then have some kind of honest "stability". As there is only a 0.8% difference between the CPI and RPI right now the switch wouldn't be too problematic.

Did the Government strip out housing costs in it's calculation of Inflation during 2005, resulting in the BoE reducing interest rates to 3.75% which precipated the "boom" in house prices in 2006/2007 thus resulting in the correction now? Was this a sound economic decision or one politically motivated by the brooding Gordon to keep the house price boom going in order to get his hands on the keys to No 10?

Let's get back to honest politics and an honest inflation calculation based on the RPI.

A rapid rebound in house prices?

A rapid rebound requires not only demand but the huge increases in the supply of credit - however with the almost inevitable increase in regulation this may not happen.

If prices fall by the 30%-40% as is predicted the rate of increase required is very large indeed to get a rapid rebound - this in itself will be a cause to tighten monetary policy after the recent experience and perhaps less likely. The maths do not add up for a rapid rebound. If it occurs the bubble may also burst quickly.

If we believe that the regulators words about increased regulation is just talk then it may happen, but my guess is that a rapid rebound is unlikely. I therefore disagree with those who expect such a rebound.

Is this more scaremongering by Mr Preston by the use of a headline "house prices to fall for 2 years"!

To the majority of the public this is inaccurate information. Yes house prices will fall but these are paper losses for householders. People will always need a place to live so unless they can not afford the repayments (which you have to consider is their fault), or they plan to sell and rent instead (why!?) then they will not realise these losses.

Just one other point Mr Preston, you forgot to mention a particular bank in this one to cause another run, your standards are splipping!!!

Number 15 if people can't afford their repayments why were they lent money in the first place. You can't place the blame soley with borrowers surley the experts who lent them the money should have had some common sense
Number 13 why should I as a saver who has no mortgage suffer with lower interest rates beacuse people were stupid enough to take out 125% mortgages that are over 5 times their income or their 3rd buy to let home that pushes up the house prices for the first time buyer.
Number 10 read the magazine article reasons to be cheerful in the current economic climate: unemployment may be rising but is rising from 20 year lows
Number 1 Northern Rock was nationalised to save the deposits of millions of savers. If the bank that has your savings/current account starts to fail wouldn't you like the government to do the same for you?

I'd love to own my own home but I'm not going to pay the amount that house prices are at the moment for something I want. (not that I think anyone sensible should actually lend me the money) House prices would have to fall a lot before it even beacme a viable option for me. House prices will fall even if credit becomes cheaper just for this reason.

Number 9, 11, 12, 15. House prices are going down - get over it. If you bought at the right time and sold at the right time good for you. If you did not Oh well, that's how those who did made their money, I'm sure they will thank you for your contribution to their early retirement.

If you used housing as an investment then you run the same risk in that market as you do in any other.

On the subject of markets, it is complete tosh to talk about a rebound or demand swelling prices yet. The primary use of a house is, wait for it........ a home. Now here is the other really tricky bit to get your head round. If houses are no longer affordable, no matter how many or few there are to fulfil this function they have to come down, as they are now. 100 year mortgages, sort of defeats the purpose of borrowing money to buy I think.

This is Sir Win Bischoff who told us in May that the worst was over!

He is chairman of one of the banks who have contributed to the the "credit crunch" yet he appears to be clueless regarding it's severity or longevity. How can anyone have confidence that Bischoff and his peers are going to manage this situation in anyone's interest but their own. I am sorry that staff will lose their jobs at Citigroup but the company I work for has already started that process and it is likely to continue.

Can't help wondering but after writing off loads of money and then announcing big job losses Sir Win is hardly likely to say everything is going to be rosy by Xmas. He had to paint a gloomy picture. He can hardly be relied on to predict future events as I don't recall him mentioning the mess we are in before it happened.
Now if only I could remember where I left my crystal ball.....

Win Bischoff is stating the obvious regarding the UK house price correction. However, I am grateful that he does because the vested interests are back to tell us that house prices are soon to rise again despite the complete collapse of the mortgage bubble.

Peston, what are you doing up at 5 in the morning on a Saturday!? chill

Sir Win Bischoff is patently WRONG - Gordon Brown himself declared quite some time ago that there would be no more boom and bust. And wasn't he Chancellor of the Exchequer or something for a while?


LOL. But, back to reality. Two years of falls? I think that's about the most optimistic outlook, it could be shorter with very sharp falls, or it could stretch out for longer with more gentle falls. A lot will depend, I think, on the BofE's action regarding interest rates (although, to be fair, the Base Rate is becoming increasingly irrelevant as the market rate has long since decoupled from it).



Re: #7 Frank-Castle

We'll have a recession for a couple of years and bounce back, hopefully with the lesson finally learned that you can't end boom and bust, talk of a depression is just hyperbole.

The shape of the economic downturn will be determined by interest rates: aggressive rate rises will see a sharp downturn and possibly avoid a depression, whereas the failure to tackle inflation in a timely manner will almost certainly lead to a depression. Stark choices, but sadly the result of allowing such an enormous credit bubble to develop - the bigger the party, the bigger the hangover.



Re #11 TonyJMoore

It's interesting how long term fundementals [sic] are ignored when short term problems preoccupy people who should know better. No 9 is entirely correct when he points out that the property market will correct in a couple of years back to recent levels.

The rise in property prices was A BUBBLE. History teaches that once a bubble in a particular asset class bursts, it does not then immediately reinflate (for a recent example, see the technology/telecom stocks post 2000, but feel free to check any previous bubble). The fact that the over-riding sentiment is still bullish (I don't see any panic-selling of property, and in fact some people who can afford to are still buying!) indicates that there are more potential sellers than buyers, and that, fundamentally, is bearish.

(BTW, long term fundamentals? Try a change from a low inflation environment to a high inflation environment, and see how that paradigm shift affects your calculations.)

The key fundemental [sic] in all this is demand. Housing values in the UK reached 2007 levels because demand was being accomodated [sic] with available credit. The credit did not create the fundemental [sic] demand. That credit is not now available at either the price or volume to service that demand, but can we say the demand has disappeared?

No, the key fundamental is AFFORDABILITY, and the key factor in affordability is (or certainly was, in the last 5 years) the monthly mortgage payment, and the key factor in the mortgage payment is THE INTEREST RATE. In other words, cheap credit made property more affordable which therefore boosted demand, which led to price increases and thus the bubble was born. Now, not only have interest rates risen markedly, but buyers now have to find a sizeable deposit. The result: a severe drop in affordability. It doesn't matter how much a person may desire to buy a house, if they can't afford it, they can't buy it = zero ACTUAL demand.

(You also seem to have omitted the effect on demand from the considerable immigration of EU workers during the boom years, a lot of whom are, apparently, now returning to their home countries.)



Re: #13 NorthernThatcherite

By reducing interest rates the Government could reduce inflation. How?

My God, you've cracked it!

Sadly, no, there is no such thing as alchemy, financial or otherwise. Simply changing the inflation measure does not change the inflation level. The price rises being witnessed in commodities (life essentials such as food, energy and fuel) are a real indicator of the real inflation rate, rather than the price of discretionary items like a new plasma TV. Sadly, if Gordon "no return to boom and bust" Brown had actually chosen an inflation measure that had included house prices (not mortgage or rental payments), interest rates would have been raised to control "inflation" long ago and prevented the property bubble forming...

Re: 22. YummyCarolKirkwood.

You've got my point completely!

If the Gov't used the RPI figure for inflation which includes mortgage and house prices then as house prices fall this will help inflation fall, thus resulting in interest rate cuts once inflation gets to say the 2% level.............this will help the housing market out of its free-fall which is not good for the economy or those who are about to become unemployed!

If the Govt carries on with the CPI measure...this will just go up and up due to oil and food etc and the unemployment rate will be much worse.

The advantage of swapping from the CPI to the RPI now is that once the housing market stabilises then should house prices start racing ahead again (there is huge pent up demand) once mortgages become available then interest rates will be raised to cap the excessive house prices rises that we have seen in the past.....................

and hey presto.........housing market stability and thus economic stability and less suffering for those who will now lose their jobs due to this Govt's failure in allowing the housing market to boom on the back of low interest/mortgage rates!!!!!!!!

Can anyone tell me did the Govt change the inflation measure in 2005 to exclude mortgage rates and house prices thus resulting in 3.75% BoE rates thus resulting in the 2006/2007 house price boom?

He could well be right but given his complete failure to manage his own company and act responsibly along many other of his fellow chairman, I hardly think his comments are of any great merit anymore.

#16 Yes the "experts" should have realised they could not afford to repay however it was not their money so they did not care.

But they are not the ones who will lose their homes, if people got these mortgages without thinging about the long term repayments they get no sympathy from me!

#17 There's nothing to get over for me or most other people, i bought 1 house a while ago and i can afford the repayments, so i have not lost or gained anything (like most). If i did sell i would get less now but i'd still need somewhere to live so i would buy somewhere else (also for less) - therefore no gain or loss like most, thats my point!

Why on earth would we take any notice of what this man says?

This bank is the biggest loser in the world from sub-prime write-downs, i.e. failing to predict the credit crunch and the current decline in property prices. It is rather the equivalent of finding someone crying outside a betting shop because they've lost all their money, and then asking them which horse is going to win the 4:30 at Kempton :)

All that is being predicted is that what's happening today will continue to happen tomorrow - absolutely the easiest prediction to make.

To put it another way, if it is raining today and I predict that it will rain tomorrow it doesn't make me a (good) weather forecaster even if it does rain!

Neil

"Banks having to say they are solvent, which is always a danger sign."

Sometimes the truth just slips out.

Analysis of banking shows that no bank is solvent.
If we refused to give them real wealth created through productive labour in exchange for the credits they create out of nothing for loans, they would collapse.
97% of our money is created as debt by government, councils, people, etc.
Banking is a mechanism that converts credits (debt) into real wealth for the bankers.
Only productive labour creates wealth.
Those who create the debt get the wealth and those who create the wealth get the debt.
Nationalise the money supply and give us an honest fiat money system that we all can benefit from.

Interesting comments about house price falls etc.

But am I wrong to thimk that if house prices fall 20% and we have possible inflation of 20% then the real value of property would have depreciated by 40%.

Re: #23 NorthernThatcherite

If the Gov't used the RPI figure for inflation which includes mortgage and house prices then as house prices fall this will help inflation fall, thus resulting in interest rate cuts once inflation gets to say the 2% level.............

RPI includes mortgage payments, not house prices, and since mortgage payments are largely determined by interest rates, you get something of a feedback loop: lower interest rates = lower mortgage payments = lower RPI, and the converse. As I said, what was (and is) needed is an inflation measure that included house prices, so that interest rates would have risen to curb house price inflation, preventing the formation of the bubble. But the economy was "booming" and a certain Mr Brown was too busy congratulating himself - and being congratulated - on his economic genius to care and/or realise.


If the Govt carries on with the CPI measure...this will just go up and up due to oil and food etc and the unemployment rate will be much worse.

Do you understand what inflation actually is? It is the devaluation of currency, ie the pound in your pocket is worth less/buys you less, ie rising prices (see Zimbabwe). As I said, fudging the inflation measure does not eradicate inflation, in just the same way as closing your eyes does not make you invisible.


Can anyone tell me did the Govt change the inflation measure in 2005 to exclude mortgage rates and house prices thus resulting in 3.75% BoE rates thus resulting in the 2006/2007 house price boom?

I think it was much earlier than 2005 that the Government decided that CPI would be their preferred measure of inflation rather than RPI, in order to bring the UK into line with the rest of Europe, and whereas RPI included an element of the property market (mortgage payments) CPI has none. However, while CPI might be quite an appropriate inflation measure for most of the rest of Europe, Britain and its economy has quite a different relation with its property sector, and it is therefore debatable as to its suitability - I submit the recent property bubble as supporting evidence.

Interest rates were slashed in response to the bursting of the stockmarket bubble in 2000 and the events of 11 September. It was an attempt to prevent the onset of a recession and the then threat of deflation, but in their futile attempt to defeat the natural economic cycle, they simply created another, even bigger bubble (credit/property) to counteract the effect of the bursting of the stockmarket bubble. The officials at the Federal Reserve were petrified at the thought of the US entering an extended period of deflation, as had been witnessed by Japan for ~15 years, and in their "wisdom" argued that while they did not know how to combat deflation, they did know how to combat inflation. Unfortunately, they now find that in fact they don't know how to combat inflation in an environment of a stagnant/contracting economy. The problems they now face are of an order of magnitude or two greater than the problems they averted (postponed) earlier this decade. In the Autumn of last year, it was widely predicted that the Credit Crunch would be pretty much over by now; it is only really in the last few days that prominent figures (eg. Alistair Darling) have publically started to acknowledge just how big this problem really is...

Re: #28 virtualsilverlady

But am I wrong to thimk that if house prices fall 20% and we have possible inflation of 20% then the real value of property would have depreciated by 40%.

House price inflation is house price inflation. If house prices drop 20%, they drop 20%; but everything is measured in terms of money. Different asset type experience different levels of inflation/deflation - currently food prices are rising, while the prices of clothes and shoes are falling. So, for example, if in a year's time you wanted to sell your house and put the money into gold and that in that time house prices have dropped 10% and gold has risen 10%, you would then get only 81.8% the amount of gold that you could if you entered the same transaction today. In other words, relative to gold, house prices have dropped 19.2%, whereas in monetary terms they have only dropped 10%.

Hope that helps 8-)

Re: 29. YummyCarolKirkwood.

You give some good answers..........are you Vince Cable in disguise?????

Question 1:

What circumstances will be needed to bring the crrdit crunch to an end and when do you expect this happen in your opinion?

Question 2:

If you were AD/GB would you redefine the inflation rate now in order to include house prices so that the fall and rises in such are in the future not at "boom and bust" rates?

Can I congratulate YummyCarolKirkwood on her(?) clear answers - she's wasted on the weather.

If Northern Thatcherite doesn't mind I'd like to throw in a couple of answers to his questions:

Q1 - No one can answer that and do not believe anyone who gives you an answer. It started because the banks believed that there was so much debt, loose lending practices and lies (for want of more flattering words) that there was a very good chance (inevitable) that many loans would go bad. Because debt has fuelled the economy to a significant extent then it has to be worked through the system BUT it is not just a case of all the bad debts being written off; it is a dynamic situation; more bad debts are coming into being; people who were safe this year will be in difficultly next and likely to increase. We have had a self-reinforcing boom and it now looks like a self-reinforcing bust. DO NOT believe people who say things will flatten out! There is no flatten out point that anyone can credibly state.

Q2 - I think that is what she(?) is saying.

Final point - if I was a manufacturing company I'd relocate East as they nearly all have done. There's a real danger of when we do bottom that our living standards will stay low for a long time. Remember: the history of capitalism is one of being mutually exclusive. (Protectionism is a looming issue.)

Re: #31 NorthernThatcherite

Re: 29. YummyCarolKirkwood.

You give some good answers..........are you Vince Cable in disguise?????

You flatter me, sir! No, not VC 8-) Economically, he commands the most respect from me after Ken Clark (who really should be the current Tory leader, but don't get me started), although I was very much in favour of a market solution for Northern Rock - basically what they are doing now that they have been nationalised, ironically! - rather than VC's vocal call for nationalisation.



Question 1:

What circumstances will be needed to bring the crrdit crunch to an end and when do you expect this happen in your opinion?

Simple: higher interest rates. If the prospective return is sufficiently high, money will be lent. Because returns are low, money is going into other asset classes, viz the high commodity price inflation. I've made this point repeatedly on other threads, so I won't repeat myself here, but you can click on my name to see other posts I have made.


Question 2:

If you were AD/GB would you redefine the inflation rate now in order to include house prices so that the fall and rises in such are in the future not at "boom and bust" rates?

Not at this point of the "inflation cycle" - it's important to maintain consistency rather than chopping and changing which will just lead to further volatility. However, I would be berating the BofE, as the MPC are very much in dereliction of their duty regarding their mandate for setting the base rate in respect of the level of CPI. I actually think there's a case for fixing the base rate at an arbitrary level, as constantly adjusting it to address changes in inflation just exaggerates the swings, IMHO. But if interest rates are to be used to try and manage inflation, I think it's important that a measure that includes an element of all asset classes should be used in order to prevent bubbles forming in any asset class. Perhaps this idea can be revisited in a few years' time when inflation is once again under control...

A property is only worth the price that someone will pay for it at the time of sale and purchase so a lot of people are panicking for nothing. The index linked valuation of a property can go up and down like a yoyo during the time that you live there. Even if you have negative equity, as long as you can afford to keep up the mortgage payments and don't have to move, just sit tight until things get better.

Robert,

It is sad that the house prices could drop for two years...

I wonder how many people will find themselves Homeless ?

Probably a growing number.

The more House prices fall, the tighter lending criteria will be.

Of course the Building Firms have already dramatically scaled back their new builds.

There will be an awful lot of people unable to get a house at any price.

Except of course the Landlords with cash to spare.

They will be snapping up repossession homes as fast as they appear.

A lifetime of rental ahead !

It's worth noting that Higher Interest rates won't reduce Inflation as the Inflation is coming in thro Commodity prices from abroad.

The only People to benefit from Higher Interest Rates will be the Banks, a handful of Savers.

The People who lose will be everyone who becomes Homeless because they cannot afford their Mortgage.

Of course I'm alright Jack so raise Interest Rates, squeeze the poor even more !

Re: #37 supercalmdown

It's worth noting that Higher Interest rates won't reduce Inflation as the Inflation is coming in thro Commodity prices from abroad.

Constantly repeating this propaganda, won't make it any more true.

The return on cash is TOO LOW, that is why investors are putting their money into OTHER ASSET CLASSES, PRINCIPALLY COMMODITIES, hence the rise in commodity prices. Low interest rates are leading to yet another bubble. As I've said before, it's not rocket science. Inflation is inflation. Hopefully one day you will grasp these very simple concepts.

Good morning,

Firstly the title is a td confusing. Housing prices in trhe US have been falling for over a year, so it’s true to say they have a further two years to fall. However houses prices in the UK have only just started to fall, and history dictates, they will continue to fall for the new 3 years.

For the last 12 years, those of you who may still be housing bulls, must accept we have had 12 years to economic growth. This is and was unheard of, and something we should thank Labour for, or should we ?

Has anyone sat back to understood how the mechanics and foundations of this economy have been built ?

This country has been built on debt, cheap debt, a buy now, pay never culture.
Consumers are mortgages to the hilt, this government is broke, hence the attempt to change the fiscal rules. They have no choice but to borrow more. For years brown took it upon himself to take credit for this 12 year growth period in the economy, who wouldn’t.. What he failed to state was a large part of this was due to global; factors and not Labour and its Chancellor. Now of course when things go wrong, he blames global factors. The Labour party is full of spin, lies and have constantly lied top the voters about official figures, simply by manipulating inflation, unemployment figures, (moving them onto the sick) and many more.

In 2001, this country as did others flooded the economy with cheap cash to proper up the country and its finances. While America suffered a recession as did some European counterparts, the UK was oh so happy. This government told everyone to spend like no tomorrow and so they did. It devalued the £ locally pushing up house prices and devaluing peoples savings. The consumers spent the country out of recession. In 2003, again this country was heading for a mild slowdown. House prices started to fall as they did in 2001, but again this government decided they didn’t care about the average people and started creating fictitious public sector jobs to keep the unemployment figures down. They spent and spent and so did the consumer. Lets not forget they are now cutting these same public sector jobs. This time the government took the country out of a possible slowdown in increased public spending. In 2005, again the housing market slowdown and for a period you couldn’t sell your home. Then again election time, they pumped it up and that kicked started the market.

In each of these instances, the banks were not losing any money. In late 2006 the US started having problems with consumer debt, CDOs and defaults on mortgages. This has finally hit all countries that allowed assets to inflated way over normal values ( US, AUZ, Spain, NI, NZ, Iceland).

The idea that house prices are going to rebound anytime soon is just ludicrous. People have so much debt, they will not be able to manage any further debt. Inflation is rising and will be with us for at least another two years. Even if this government think inflation will fall back inline in a years time ( which it won’t), people will know whether that’s happened or no by seeing how empty their pockets are after visiting the supermarket and petrol station.

House prices are falling and falling fast. Sellers who this is 2005 again will soon see by December 2008, times will be even worse. These estate agents who have never even senn a downturn are also a problem. They are young and all they’ve seen are rises. It’s not their fault there intelligence in one way.

The bottom line is this. House prices will fall from now to 2011. They are over valued and will fall 35-50% in real terms. No matter how this government tries to inflated prices , or spin the house price falls as small compared to the rises, they have clearly demonstrated disregard for the average person who not only cannot buy a home , but also pay their bills.

Labour you should be ashamed. Gordon Brown, we know how you and Blair are spin perfectionists. You never looked after the average person. They’ll simply vote you out in droves at the next election.

You’ve had 12 years to spend spend spend, and waste, waste waste. No efficiency n budgetary planning. Too few results have come out. You just cannot pumps loads of money into something and say it will work. You need structure and focus and efficiency. Look what’s happened to the SATS. Disgrace. Need I say more.

See you at the election, I’ll wave good bye.

Good morning,

Firstly the title is a td confusing. Housing prices in trhe US have been falling for over a year, so it’s true to say they have a further two years to fall. However houses prices in the UK have only just started to fall, and history dictates, they will continue to fall for the new 3 years.

For the last 12 years, those of you who may still be housing bulls, must accept we have had 12 years to economic growth. This is and was unheard of, and something we should thank Labour for, or should we ?

Has anyone sat back to understood how the mechanics and foundations of this economy have been built ?

This country has been built on debt, cheap debt, a buy now, pay never culture.
Consumers are mortgages to the hilt, this government is broke, hence the attempt to change the fiscal rules. They have no choice but to borrow more. For years brown took it upon himself to take credit for this 12 year growth period in the economy, who wouldn’t.. What he failed to state was a large part of this was due to global; factors and not Labour and its Chancellor. Now of course when things go wrong, he blames global factors. The Labour party is full of spin, lies and have constantly lied top the voters about official figures, simply by manipulating inflation, unemployment figures, (moving them onto the sick) and many more.

In 2001, this country as did others flooded the economy with cheap cash to proper up the country and its finances. While America suffered a recession as did some European counterparts, the UK was oh so happy. This government told everyone to spend like no tomorrow and so they did. It devalued the £ locally pushing up house prices and devaluing peoples savings. The consumers spent the country out of recession. In 2003, again this country was heading for a mild slowdown. House prices started to fall as they did in 2001, but again this government decided they didn’t care about the average people and started creating fictitious public sector jobs to keep the unemployment figures down. They spent and spent and so did the consumer. Lets not forget they are now cutting these same public sector jobs. This time the government took the country out of a possible slowdown in increased public spending. In 2005, again the housing market slowdown and for a period you couldn’t sell your home. Then again election time, they pumped it up and that kicked started the market.

In each of these instances, the banks were not losing any money. In late 2006 the US started having problems with consumer debt, CDOs and defaults on mortgages. This has finally hit all countries that allowed assets to inflated way over normal values ( US, AUZ, Spain, NI, NZ, Iceland).

The idea that house prices are going to rebound anytime soon is just ludicrous. People have so much debt, they will not be able to manage any further debt. Inflation is rising and will be with us for at least another two years. Even if this government think inflation will fall back inline in a years time ( which it won’t), people will know whether that’s happened or no by seeing how empty their pockets are after visiting the supermarket and petrol station.

House prices are falling and falling fast. Sellers who this is 2005 again will soon see by December 2008, times will be even worse. These estate agents who have never even senn a downturn are also a problem. They are young and all they’ve seen are rises. It’s not their fault there intelligence in one way.

The bottom line is this. House prices will fall from now to 2011. They are over valued and will fall 35-50% in real terms. No matter how this government tries to inflated prices , or spin the house price falls as small compared to the rises, they have clearly demonstrated disregard for the average person who not only cannot buy a home , but also pay their bills.

Labour you should be ashamed. Gordon Brown, we know how you and Blair are spin perfectionists. You never looked after the average person. They’ll simply vote you out in droves at the next election.

You’ve had 12 years to spend spend spend, and waste, waste waste. No efficiency n budgetary planning. Too few results have come out. You just cannot pumps loads of money into something and say it will work. You need structure and focus and efficiency. Look what’s happened to the SATS. Disgrace. Need I say more.

See you at the election, I’ll wave good bye.

I find it odd that only now are the powers coming out and admitting that this year is going to be bad and next year is going to be a whole lot worse. This was expected from the moment the first queue developed outside a branch of the Northern Wreck.

Now with the commodity price surge and the government admitting it has no more money, I fear that we will be lucky if the economy bottoms out as early as 2010. The trouble will rattle on for the better part of ten years.

All the prattle about house prices is just a nasty obsession working its way through British culture. House prices were too high due to over-leverage, the bubble was going to burst at some time, and the market will eventually over-correct creating all sorts of opportunities so that the mad cycle will then resume.

In the meantime just focus on making a home and be hopeful than you can continue to afford it, heat it and eat: preferably all at the same time.

Re #31 and #32

I agree with your sentiments completely. There are many blogs that get me thinking "thats a good idea" but then YummyCarolKirkwood brings me clearly down to earth. To YCC - keep your explanations coming.

What we have here is the collapse of the banking system as we currently know it. Be it by either using the method of slow torture by keeping interest rates artificially low in an inflationary period preventing the BoE from turning off the life support or INCREASING interest rates to combat the inflationary pressure aggressively, killing the patient swiftly by severing the head!

I can quite understand the POLITICAL decision not to severe the head at a time when it maybe easier to keep the machine turned on until the next government enters the fray. Who wants to be associated with the Depression that the collapse of the Banking system will bring?

Each scenario will have its casualties, however, a devastating, reasonably contained nuclear bomb as against a 5 year trench fought world war would of had us out the other side so much quicker.

As we all begin to line up in the trenches waiting for Col. G Brown and Lance Corp. Darling to delay giving the command I wish I was on the side of the Euro zone who took the decision to cut the inflationary throat on their way to hopefully severing that bloody head! Because from this side it looks very very hopeless at least from their side there will be many survivors.

and this is the exact reason that euroland has now entered a recession before the US and UK

The US cut interest rates dramatically, the UK dabbled with small cuts and the EURO has increased rates.

They will have their pain and contain inflation, guess what the US and we get?

However, the magnitude of the Depression maybe so big that even the attempt of Euroland to control inflation as the worse of three evils will probably be sucked in anyway.

Which pundit ever exposed the 'buy to let' mortgage impact on the property market encountered by REAL repople and the false accounting that resulted from surveyers over-valuing houses for certain 'investors' in such a way that the 'investors' (also known as speculators/profiteers) were able to do 'sunset' mortgages that allowed them to make an instant profit on a property while mortgaging it with ZERO deposit (in REAL money terms) on a high-percentage interest-only mortgage? Which pundit has exposed how many of those 'property developers'/'property speculators' as living in properties they 'own' on interest-only mortgages which they are really only leasing from companies they own while they milk other tennants in other properties they 'own' for rents that PAY for the 'invetor'/'speculator' mortgage/rent???

Peston? Never!!!!!! Not in MY lifetime. That makes a pest-off of someone trying to take the high-ground in poorly reporting simple information while ignoring the BIG picture, don't you think? I do, you may have guessed by now. Do some REAL investigation of the REAL issues impacting people for a CHANGE, plese.

May the Capital Gains Tax be reinstated to 60% to stop false valuations of capital assets and may second properties owned by companies in the SOLE ownership of individuals and their families (and a few other paid 'advisors') suddenly come under proper scrutiny AGAIN. Shortage of 'affordable housing'? Not if you take ALL of the LEECHES out of the equation!!!!!!!!!

Over the past year, there have been many people predicting that the UK property market would simply follow the same path as the US property market. However, this week there was a ³ÉÈËÂÛ̳ article highlighting a signifcant difference between the two markets - see

In the US, mortgagees can pretty much just hand in the keys to their property back to their mortgage provider and walk away from the liability, whereas in this country, borrowers are still liable for the full amount outstanding on their mortgage until it is paid off. In other words, people who bought properties at the top of the market in the US can simply pass the problem onto their lenders, whereas the people who bought at the top of the market in the UK are saddled with the problem.

What effect on the two markets - and economies - this difference will have seems unclear, but it is an important difference to bear in mind nevertheless.