Giant predicts property pain

HOUSE prices could crash by up to 20 per cent as interest rates rise, the outgoing head of Britain’s largest retail stockbroker warned yesterday.

Peter Hargreaves, who steps down as chief executive of Hargreaves Lansdown today, said residential real estate values would be squeezed by tightening monetary policy while commercial property would be hit by government spending cuts.

“I can’t see much of a future for property with the lack of mortgage money and the fact these cuts are going to create a glut of commercial space as the public sector vacates buildings,” Hargreaves told City A.M. “House prices need to be 20 per cent lower. The only reason they’ve held up is interest rates are so low – when rates rise my gut feeling is a lot of people will chuck their keys away.”

His remarks come amid growing fears of a second downturn in the housing market. Data from the Bank of England (BoE) this week showed mortgage lending fell to a four-month low in July. Economists expect the BoE to gradually raise its base rate from 0.5 per cent to around two per cent by the end of next year.

However, Hargreaves said his greatest worry was the coalition shirking from the deep spending cuts outlined in June’s emergency Budget.

Despite the bleak outlook, Hargreaves Lansdown raised its full-year profit before tax 18 per cent to £86.3m. Revenues rose 20 per cent to £159m as clients chased inflation-beating returns from their investments. The Bristol-based network paid a second special dividend of 1.7p, after March’s unexpected interim payment of 1.6p, both of which came on top of a regular payment of 8.58p.

Hargreaves is replaced at the top by Ian Gorham, who joined in 2009 from Grant Thornton’s financial team.