Forum Brief: House prices

Mervyn King, the Bank of England governor, has issued a clear warning to house buyers of a growing risk that house prices could fall.

Speaking to the CBI in Scotland, King indicated that interest rates could rise faster than market expectations.

"Anyone entering or moving within the housing market should consider carefully the possible future paths of house prices and interest rates," he said.

Forum Response: Nationwide

Stuart Bernau, executive director of Nationwide, said: "We think that the likelihood of a 'crash' is very small indeed. It is much more likely that we will see a period of stability or lower house price inflation. Affordability is becoming more of an issue, but borrowers should not be tempted to overstretch themselves.

"As a responsible lender we concentrate on helping people to buy their own homes in a prudent and sustainable way. It is not in our interests to let people borrow more than they can afford to pay back."

Forum Response: Council of Mortgage Lenders

A spokesman for the CML said: "The CML's central expectation for the housing market continues to be for a gentle slowdown, largely driven by higher interest rates and increased affordability constraints. 

"We believe that base rates are likely to end the year at around 5.25 per cent, and end next year at around 5.5 per cent.  We expect house price growth to end the year at around 14 per cent, followed by a more pronounced slowdown in 2005 with prices rising by only 8 per cent. 

"Given the Bank of England's clear signal that more rate rises are likely, it is important that borrowers arrange their finances to be able
to cope with moderately higher rates over the coming year or so."