Wednesday, March 26, 2008

Warning over 'UK house price crash'

It has been claimed that the UK's economy could be heading for a sharp consumer slowdown similar to that seen in the United States if house prices continue to fall.

According to Capital Economics, the similarities between UK and US consumers are "disturbing", with the UK consumer sector suffering from the same build up of imbalances as in the US.

The group added that a key driver of the slump in the US had been falling house prices, which are now being seen in the UK too.

And it said that people in the UK are more indebted than those in the US, with total household debt now standing at the equivalent of 175% of household disposable income, compared with only 128% for Americans.

Capital Economics added that while household assets had risen more sharply in the UK than in the US, the UK's housing market appears even more vulnerable to a sharp correction.

The UK has not seen the big surge in sub-prime borrowing, under which lenders advance money to people who would be turned down by mainstream banks, while a lack of housing supply in the UK could also support house prices. But the group added that with UK mortgage lenders tightening their lending criteria, UK house prices are likely to follow US ones down, and could even fall more sharply.

Copyright © PA Business 2008

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