U.K. Home Prices May Fall 10%
A U.K. house-price drop of 10 percent next year may be no “bad thing” because it would help poorer Britons afford a home, Morgan Stanley economist David Miles said.“There’s a gain for people about to trade up or first-time buyers, and that offsets the loss when house prices are falling,” Miles, who advised the Treasury on the British property market, said in London yesterday. “
On balance, it’s almost certainly redistributive to people who are younger and less well off.”
Miles said investors’ bets show they forecast house prices will decline by as much as a tenth in 2008, ending a decade-long boom in which values tripled.
The Bank of England cut the benchmark interest rate last week to preempt the outlook for slower growth after the collapse of the U.S. subprime mortgage market pushed up borrowing costs worldwide.
“For the majority of parts of the U.K., house prices are falling mildly on average,” Miles told a seminar organized by the National Institute of Economic and Social Research, a research group whose clients include the Treasury and the central bank. “That is not a bad thing.”
Britons are living with their parents for longer than they used to as gains in house prices make it less affordable for them to buy their own place, a government report said in April.
Mortgage interest payments for first-time buyers, as a percentage of income, rose to 20.6 percent in October, the highest since 1971, data from the Council for Mortgage Lenders showed yesterday.