Homeowners should brace themselves for property falls

Homeowners in the UK should brace themselves for a fall in property values in real terms over the next few years. This is the message from the governor of the Bank of England, Mervyn King.

Mr King added that homeowner should not expect to see their property values rise much in the short or medium term.

Following the release of the last quarterly inflation report King stated: ‘The central view in this forecast is, looking several years ahead, there’s no reason to expect house prices to be markedly above where they are now. It’s conceivable there might be falls in house prices, but broadly speaking we’re looking at quite a long period now of stability in house prices, and that would enable there to be quite a marked adjustment in the ratio of different measures of affordability, such as house prices to earnings for example.’

He went on to state: ‘Four years of broadly flat house prices would mean a fall in 20% in the ratio of house prices to average earnings. So you can get quite big adjustments in the housing market without having to see large falls in house prices. None of us know what will happen to house prices.’