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House prices could fall 25%, warns Savills

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By Lee Wild

Date: Monday 28 Apr 2008

LONDON (ShareCast) - House prices could plunge by a quarter by the end of next year if the credit crunch continues to batter consumer confidence, a new survey claimed today.

Estate agent Savills said the worst case scenario would see prices slump 10% in 2008 and another 15% in 2009, although the “super prime” market will avoid a sharp drop.

But if the Bank of England takes all necessary steps to cure the credit crisis, the company’s revised forecast puts the overall house price decline at just 6%. A 4% drop in 2008 and 2% next year assumes the impact of the credit problem is restricted to the financial sector.

Savills reckons the probability of a flat market in 2008 is now zero.

"The Bank's recent £50bn bond swap initiative has an awful lot riding on it,” said Yolande Barnes, Director, Savills Research.

“Our current forecast of -6% to the end of 2009 can only be achieved if we see decisive action from the Bank of England to ensure normality returns to the mortgage market.”

Today’s report comes as property data group Hometrack flagged a 0.6% drop in house prices during April as buyers held back due to a lack of credit and price slump fears.

This month’s slide was the biggest since December 2004 and takes the average cost of a home in England and Wales to £173,100. The annual decline is now 0.9%.

“Weak confidence is effectively resulting in a buyers strike,” said director of research at Hometrack, Richard Donnell.

Prices in London fell by 0.7%, just behind East Anglia and the West Midlands which both dropped 0.8%.

But Savills believes the super rich will escape any serious damage due to a shortage of property, no dependency of mortgages and strong competition for the very best.

There will also be a ”rapid” recovery if their forecasts are right, with prices fully recovered by 2012 at the very latest.

In another development Monday, mortgage lender Nationwide increased the minimum deposit for house purchases to 10% on all but two of its products, as it looks to reduce risk in the current economic gloom.