UK house prices: Is a crash coming? These economists thinks so, raising spectre of negative equity

 
Lynsey Barber
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Experts predict a correction in the UK housing market (Source: Getty)

Leading economists have warned that the UK is heading for a collapse in house prices not seen since the early 90s which risks plunging homeowners into negative equity.

"We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting," said Paul Cheshire, a professor of economic geography at the London School of Economics, speaking to the Mail on Sunday and warning that they could fall as much as 40 per cent.

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"Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain."

He said that a fall in real incomes is likely to spark a crash. Inflation hit a four-year high of 2.9 per cent in June and wages are failing to keep pace.

"If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one," added fellow LSE professor Christian Hilber.

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Figures just last week revealed that more than three-quarters of homes are selling for under the asking price, according to the National Association of Estate Agents (NAEA). Separate research from Rightmove suggested house prices fell in June - the first time since 2009.

The Bank of England has also warned of the risks in London's commercial property market, saying it is “vulnerable to repricing" in its financial stability report last week.

In the early 1990s house prices plunged leaving many with homes worth less than the mortgage against it.

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