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Warnings of property crash

The housing market is in significant danger of crashing, according to leading economist Roger Bootle, a former adviser to the last Conservative Chancellor Kenneth Clarke.

Capital Economics managing director Bootle warned last week&#39s Building Societies Association annual conference in Bournemouth that people&#39s earnings are not rising in line with house prices and that mortgage debt as a percentage of income is higher than in the 1980s.

Mortgage experts have also expressed their concern about the overheating of the market, with Prudential Premier Mortgage Service national manager John Malone warning that house prices are at a plateau and the situation, especially in London, is reaching a critical point.

Malone says price increases are being intensified by landlords buying up a large proportion of new housing stock, making it difficult for first-time buyers to enter the market.

According to Bootle, the annual growth in house prices of around 15 per cent a year is higher than in the 1990s and real rates of increase are starting to rival the 1970s and 1980s.

He points to “a more worrying picture” in London which is approaching the late 1980s&#39 peak and is giving “cause for concern”.

Bootle said: “The current rate of increase in house prices is unsustainable, boom time for consumers is coming to a close. Will the slowdown in prices come naturally or will it have to be driven by higher interest rates? There is now a significant danger of a crash.”

Malone says: “The signs are not good and if first-time buyers are taken out of the market it leads me to believe there might not be a crash but a potential pricing correction could be on the way. It would appear that prices have reached a plateau.”

BSA Conference, p9

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