IMF: UK at risk of housing market crash
Could the UK housing market crash?
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Thursday, 18, Oct 2007 08:04
The UK could face a sharp fall in house prices, similar to that experienced in the US, the International Monetary Fund (IMF) has indicated.
In its latest global economic outlook the IMF warns that countries across Europe could experience a sharp correction in house prices, which have been rising rapidly against slower wage increases.
The organisation charged with ensuring international economic stability states that the largest increases in house prices relative to incomes have been experienced in the UK, France, Ireland, the Netherlands and Spain.
But the body suggests that the bubble may be about to burst in the UK's housing market, in the same way that property prices have slumped sharply in America over recent times.
"There remains the concern that the US experience might presage steep housing downturns in other countries that have also experienced a rapid rise in house prices, with associated risks for output growth," the IMF report states.
However the report suggests that a lack of supply could continue to support UK house prices.
It also points out that housing markets in the UK and other western European nations are better placed than the US property sector, because sub-prime mortgage deals are less common on this side of the Atlantic.
Rising default levels in the US sub-prime market, which makes home-loans available to those on low incomes or with poor credit ratings, are behind the current slowdown in the American property market and have also sent the world's credit markets into disarray.
Some economists fear that the resulting global credit crunch could eventually impact upon the wider economy, with banks increasingly wary about who they lend cash to due to uncertainty about the extent to which they are exposed to bad debts in the sub-prime sector.
In its report the IMF warns that credit conditions may tighten in some western European countries as a result of the crisis, a fact which it says could have a "significant bearing" on their respective housing markets.
The warning over a potential property slump comes after a series of property price surveys pointing to a possible slowdown in the UK market. Earlier this week the Department for Communities and Local Government (DCLG) reported that annual house price inflation in the UK dropped back to 11.4 per cent in August, down from 12.4 per cent in July.