British house price fall of 20% likely

London: British house prices adjusted for inflation may drop as much as 20% in the next five years as the Bank of England raises interest rates and regulators toughen lending rules, the National Institute for Economic and Social Research said.

“The prospects for the housing market are very weak indeed over the next five years,” Ray Barrell, director of macroeconomic research and forecasting at Niesr, said at a press briefing in London.

While the property market recovered last year, recent housing data have signalled weakness as government spending cuts undermine consumer confidence and banks continue to rebuild balance sheets. Barrell estimates that with interest rates forecast to increase, real house prices are overvalued by 10% and new mortgage and banking rules proposed by British and international regulators may push prices down by a further 10%.