House prices have another 15% to fall, suggests the head of one of Britain's largest banks and mortgage lenders. John Varley, chief executive of Barclays Bank, predicts that house prices will eventually lose about 30% of the market value of their peak from last year. They have so far fallen only half that amount.
Weak outlook
"Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%," Varley told Sky News.
"I suspect we're about halfway through that at the moment... The negative house price inflation started in 2007, it's accelerated in 2008. We're probably about halfway through that period, so in other words we've got another 10 to 15% to fall between now and the end of next year."
Varley's comments are most worrying because they coincide with other predictions - though they are worse than the 20% fall in house prices expected by the Treasury.
Mortgage defaults
One serious risk is that the crisis could worsen through a vicious cycle. The Bank of England predicts that loan defaults will now rise, as unemployment increases and more people become unable to service their debts.
If more people default on their mortgages, this could lead to more serious problems. While the Government has agreed with mortgage lenders not to begin early repossession action, some homeowners will seek to sell to get out of their financial difficulties and the impact could further undermine home values.
Global scale
The scale of the global crisis was emphasised when the United States' Federal Reserve cut base rates to a virtual zero per cent - the first time in its history it has taken such a step. As an exceptional move, it has agreed to "establish a target range for the federal funds rate of 0 to 0.25%".
Minutes of the last Bank of England Monetary Policy Committee - which cut base rates to 2% - showed that its members are willing to consider further base rate cuts in Britain, too - opening up the possibility of base rates falling to 1% or even zero here, too.
However, cuts in base rates have been a major factor in the declining value of sterling, particularly against the euro. The benefits on the economy and the property market of further cuts in UK base rates will have to be balanced against the impact on the value of the currency.
Lenders not passing cuts on
However, there is limited benefit to the housing market from base rate cuts if many lenders fail to pass on interest rate cuts. Less than half of all mortgage lenders have passed on in full the most recent base rate cuts in their standard variable rates, according to analysis conducted by analysts Moneyfacts.
The failure of mortgage lenders to match the costs of lending to that of base rates was stressed by another firm of analysts, Mform. Francis Ghiloni, its Marketing and Business Development Director, says: "It is illustrative of how the world has turned upside down that fixed rates now are almost the same as they were in 2006 and 2007 even though the base rate is just 2% compared with 4.5% and 5.25% then."