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HBOS issues dire property market warning

19/06/2008

HBOS is set to cause the hearts of homeowners to skip a beat today, with predictions of a nine per cent fall in house prices included in a trading statement.

While business continues to be "satisfactory" for the lender – which owns Halifax, the UK's biggest mortgage lender – fears are growing of a severe correction of house prices.

Previously the company had predicted house prices would be "flat" this year, but has reconsidered its position following sustained turmoil in the market.

The latest Halifax house price index finds house prices fell 3.8 per cent year-on-year in May, with a drop of 2.5 per cent recorded in March alone – the biggest monthly fall since 1992.

According to HBOS the property market remains "subdued", with property transaction levels expected to fall 45 per cent.

HBOS also claimed its forecast for the property sector would lead to higher bad debt charges - and said it was seeing a rise in mortgage arrears levels.

In response to challenging conditions HBOS announced it was "deliberately growing assets at a slower pace than in recent years", although its overall performance remained "robust".

The company also confirmed write-downs linked to the ongoing liquidity crisis had risen by £58 million to £1.03 billion since the end of March.

The HBOS predictions follow those inadvertently released by housing and planning minister Caroline Flint, which suggest the government now things prices will fall by ten per cent this year "at best".

Financial analysts Global Insight, however, expect prices to fall by 12 per cent this year and next.

"We see extended downward pressure on house prices coming from serious buyer affordability constraints, limited and often more expensive mortgages available due to ongoing tight lending conditions, a deteriorating economic outlook and reduced prospects for further interest rate cuts in the near term at least," explained Global Insight economist, Howard Archer.

The HBOS comments came ahead of a £4 billion rights issue by the organisation, following in the wake of a £12 billion scheme from the Royal Bank of Scotland (RBS).