Odds shorten on 'severe correction

Mortgage lenders yesterday issued a blunt warning about the risks of a housing market crash, saying the longer prices continue to surge, the greater the chances of a "severe market correction".

The Council of Mortgage Lenders said the odds on the market enjoying a soft landing were lengthening and homebuyers should be prepared for the possibility of "more turbulent times ahead". The downbeat assessment came in a report in which it predicted that the rate of price growth will slow sharply next year. It forecasts that prices will end 2003 around 7% higher than December 31 this year, and will then increase by 4.8% in 2004.

These figures are in sharp contrast to the housing market's turbo-charged performance this year, with prices expected to end this year 23% up on 2001. Jennet Vass, the CML's senior economist, said house price growth of more than 20% was clearly unsustainable.

Her comments echo recent Bank of England warnings about the dangers of a property market crash.

"The continuing buoyancy of the housing market has increased the risk of a hard rather than soft landing... As house price growth continues to grow, so does the chance of a severe market correction," said Ms Vass. But if there was a correction, it was unlikely it would be as severe as the crash a decade ago, mainly because it was "inconceivable that interest rates would double".