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Economists clash over property prospects

Andrea Tryphonides

Housing market heavyweights Roger Bootle and John Wriglesworth clashed over the state of the UK housing market at the Building Societies’ Association’s annual lecture last week.

Capital Economics economist Roger Bootle predicted that house prices will fall by 20 per cent over the next three years.

But economist Wriglesworth said prices will remain stable as lenders are “ration-ing their loans”, with most lenders restricting residential lending to four times salary.

Bootle’s analysis of the market is based on the house price to earnings ratio which has seen prices rise from 2.8 times national average earnings in the mid-1990s to 5.9 times in the third quarter of this year.

But Wriglesworth says the HPE ratio is not a satisfactory measure of affordability. He says comparisons with adverse historical trends are irrelevant to today’s market as the base rate stands at a relatively low 4.75 per cent.

Bootle was unavailable for further comment. Capital Economics property economist Ed Stansfield says: “Buyers are increasingly unwilling to pay what they are currently being asked. Fundamentally, what we see based on the HPE ratio, is that the market will cool radically as it becomes more overstretched.”

Wriglesworth says: “Unem- ployment is still at a record low and income is rising strongly. Interest rates are still very low. In summary,I see a flat scenario rather than a headline-grabbing forecast of a decline.”

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