Halifax forecasts 2% house price drop

Banking giant Halifax today said that house prices would fall by 2% fall next year and that interest rates had peaked.

Its negative outlook for the property market is in contrast to the 2% rise predicted by the Nationwide building society and Bradford & Bingley earlier this week.

But the Halifax scotched suggestions that the housing market might crash by pointing out that unemployment and interest rates remain low in comparison to the early 1990s.

Home owners in Scotland and Northern Ireland could even see the values of their properties rise by more than 3% next year, but those in the south-east and London were braced for the heaviest falls, the bank said.

The Halifax also said house prices fell by 0.4% last month and are now down 0.9% since July. This was smaller than the declines in August and October and signalled that "a measured slowdown may be under way".

Halifax expected interest rates to decline by 0.5% over the next 12 months which would draw first-time buyers to the market in larger numbers than in recent years.

Affordability would improve with the average cost of servicing a mortgage falling to 16% of wages for new borrowers in 2005, the bank said.

Earnings growth was expected to outstrip the rise in house prices for only the second time in a decade, with wages expected to rise 4.2% next year.

Housing sales in England and Wales would be 15% lower than this year at 1.5m, but prices would continue to be propped up by a lack of supply, particularly in the south of England.

Halifax's chief economist, Martin Ellis said: "The slowdown in house price growth and activity during the past few months shows that the Bank of England's interest rate rises are successfully curbing housing demand.

"The fundamentals underpinning the housing market remain sound. In particular, the ongoing strength of the labour market, reflected inrising employment levels, will continue to support housing demand."