10 September, 2008

The head of Nationwide Building Society, Graham Beale, is expecting that UK house prices could decline by as much as 25% from their top last autumn.

Speaking to BBC News, the chief executive revealed that signs of a revival in the housing market may be delayed until 2010 and that prices will continue to decrease throughout the remainder of 2008 and during 2009.

His evaluation of the market is related to that of Andy Hornby, chief executive of HBOS, who has predicted a similar 18 month survival test for homeowners and the economy.

According to the BBC, the expectation could mean that 2.5 million households will enter negative equity.

Mr Beale holds out little hope that government involvement will foreshorten a period of what he sees as necessary price adjustment, but believes the US Treasury’s bail-out of US mortgage entities, Fannie Mae and Freddie Mac, will help to re-establish assurance in the financial markets.

This could simplify the scarcity of financial support that has led to the UK’s mortgage famine but Mr Beale does not believe the release of Fannie and Freddie can straight away refresh the Britain’s housing market.

The remarks of both Mr Beale and Mr Hornby come as banks and building societies have commenced begging the Treasury to expand the Bank of England’s Special Liquidity Scheme.

The scheme was launched in April since when it has been providing finances for UK mortgage lenders by permitting them to exchange mortgage-backed securities for tradable Treasury bills.

The market for mortgage securities has been very strong since the credit crunch seizes out last summer and the format has been a lifeline for UK banks. It is happening due to end on 20th October.

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