Are we heading for housing crash?

Are house prices out of reach for first time buyers?

Julian Knight BBC News Online personal finance reporter

Capital Economics has predicted that house prices could fall by more than 20% over the next four years. However, the market keeps powering ahead. Is everything fine, or we are heading for a painful housing market crash?

BBC News Online asked two leading market experts what they thought would happen next to the UK's hot housing market.

John Wriglesworth, chief economist at Hometrack.co.uk, an independent property research consultancy.

"Most would now agree that house price growth is slowing but it had to. Annual increases of 30% are simply unsustainable.

The major point of disagreement amongst housing analysts is how sharp and damaging the slowdown will be.

The top end of the housing market is already at a standstill in Central London - this is as a result of job losses and bonus cuts in the City."

This will undoubtedly have a ripple effect throughout London and the Southeast, Mr Wriglesworth said.

	:	UK property market
The house price boom

In addition, lenders fearing bad debts may be imposing a ceiling on the market.

"The maximum loan to value is five or even six times income in areas of the South East, but for many first time buyers even this makes getting on the property ladder unaffordable." Mr Wriglesworth predicts that London property prices will fall by up to 5% in 2003 and show little prospect of growth in 2004.

Market driven

As for the rest of the UK, Mr Wriglesworth is a little more upbeat with prices predicted to grow by 4% - still higher than inflation.

Mr Wriglesworth: London prices are falling

"The fundamentals are still in place, low interest rates mean that servicing mortgage debt is far cheaper than it was at the height of the late eighties boom.

I can see the UK as a whole still motoring along during 2003," Mr Wriglesworth concluded.

Even those in London, recent homebuyers may still be on to a winner.

" If they have bought during the last year or so, I doubt that any falls will be substantial enough to wipe out their gains. Long term home ownership is still a very attractive prospect, and with the green lobby putting a block on new builds, supply of homes will still be an issue."

Milan Khatri chief economist at the Royal Institution of Chartered Surveyors (RICS).

"I see no prospects of a price crash. Back in the early nineties the market fall was as a result of poor economy.

This time around the economy is in a much better state."

Put simply, people can afford to stay put, and even if house prices do fall, matters will not be made worse by a glut of supply as homeowners scramble to sell up

Milan Khatri

But will the chill economic winds eventually blow over UK housing market confidence?

"The world economy should recover in late 2003 and unemployment in the UK has not taken off yet - the chances of the housing market riding out the storms are good."

As a result Mr Khatri market predictions for 2003 are more bullish than Mr Wriglesworth's.

"I predict growth in prices of 11% throughout the UK. However, in areas of the North and Midlands the figure is likely to be considerably higher.

The soft landing will occur in 2004, when I predict price growth will fall to 5% but that still represents a good return on investment."

Do not panic

As for London, Mr Khatri acknowledges that the market has looked shaky in recent times but this is normal at this time of year.

Mr Khatri: Economic conditions are good

"Christmas is always a quiet time in the market. We will not know if prices are genuinely falling until spring at the earliest."

But even if prices do fall, Mr Khatri believes that there is no need for homeowners to panic.

"During the last crash, homeowners sold up because they had lost their jobs and they suffered negative equity as a result.

However, at this time unemployment and interest rates are unlikely to rise sharply.

Put simply, people can afford to stay put and even if house prices do fall matters will not be made worse by a glut of supply as homeowners scramble to sell up."