House price predictions at the beginning of the year expressed fears that the property market could remain flat in 2008 – now it seems the real picture may be even worse, with falling house price growth and fears of negative equity and repossessions rife. Find out what the experts are now predicting for the housing market.

House prices fell by 2.4% in May, with prices 3.8% lower on an annual basis, according to May’s monthly Halifax House Price Index. And the number of house transactions fell significantly in May too says the Royal Institute of Chartered Surveyors’ housing market survey.

The shock news comes as a result of difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability, curbing housing demand, says Halifax.

But what does this suggest for house prices in the coming months and years? Read on for the latest expert property predictions.

House Price Predictions: On the Current Property Market

The Council of Mortgage Lenders commented:

“The house price indices reveal further declines and the number of housing transactions is currently running around 40% down on last year. Lending, at £25.5 billion in May, was about 20% lower than a year ago, and most of the activity will have been in remortgaging. This is broadly as expected. Once the extent of the credit crunch became clear, the lack of available finance was sure to feed through into the housing market more generally."

Martin Ellis, chief economist at Halifax, said:

"Price falls should be measured against the significant gains in recent years. The average UK house price rose by more than £88,000, or 79%, between August 2002 and August 2007. High employment levels, low interest rates and a shortage of new homes support housing valuations.”

Chris Wood, Vice President of the National Association of Estate Agents, said:

"House prices are being affected differently throughout the country. However, there is a real need to keep this in perspective. The picture is mixed across the country and some areas will be more affected than others, so people really need to look to their local markets to get a true picture."

House Price Predictions: On Negative Equity

The Council of Mortgage Lenders commented:

“While falling house prices have meant that some households face negative equity, it is reassuring that the number in this position looks to be small, and the extent to which these borrowers find themselves in negative equity is modest. This is not a return to the early 1990s. Fewer people have bought at the top of the market this time round, and earlier price rises have given the vast majority of mortgage holders a sizeable equity cushion in their homes. In addition, there is no reason to expect most people in this position to do anything other than continue to pay their mortgages in full every month.”

Pauline McCallion, editor of Your Mortgage, said:

"If a borrower wishes to sell or remortgage, having a 100% / 100% plus mortgage at the moment does not necessarily mean they will be in negative equity. If they took it out two or three years ago, such borrowers could have repaid enough to bring their loan-to-value (LTV) down to 95% or less over the time they have had their mortgage, in which case they should have no problem accessing a new mortgage deal. If a borrower has not repaid enough to bring themselves to this level, the chances of getting a competitive deal from another lender are slim. But leaving it with your current lender could result in a rate of SVR plus 5% or even 8%, a massive shock to any household budget.

"If you have a 100%/100% plus mortgage and you wish to sell up, you will need to find out the current value of your property and work out how much equity you have. If you have not moved down below the 95% LTV mark, you may need to sit tight and remain in your home until the property market begins to stabilise and/or you have repaid more of the loan. Those in arrears may also encounter problems as they may be forced to sell and so could be left with a chunk of mortgage/unsecured loan that was not covered by the sale of their property.”

House Price Predictions: On Rental Yields

John Heron, managing director of Paragon Mortgages, said:

"Strong tenant demand has been pushing up rents, allowing landlords to achieve better yields than they've seen for more than two years. With lower property prices and higher rents, the yield they can achieve on a carefully selected and well managed investment property can be significantly higher than other forms of investment. With an average portfolio gearing of just 36%, landlords are well placed to free up equity to expand their portfolios.

"Landlords who are able to take advantage of cooling house prices are fulfilling a vital social role. Investors remain better placed to buy property than most owner occupiers or first-time buyers, and people still need places to live. We can expect the pressure on the private rented sector to continue in all parts of the country."

House Price Predictions: On Consumer Confidence

Louise Cuming, head of mortgages at moneysupermarket.com, said:

"Consumer confidence is plummeting, driven by inflation and evidenced by the increase in their shopping bills and rising fuel costs. As a result, people are taking a wait and see approach until their finances seem stronger and house prices have dropped even further. Until inflation goes down and people can stop worrying about the rising cost of living we won't see much movement in the housing market. However, mortgage providers should be supportive to those that do still want to move up the housing ladder. Providers must loosen the purse strings and take a balanced risk approach to their lending or face further stagnating the market."

Chris Wood, Vice President of the National Association of Estate Agents, said:

“Undoubtedly, the reduction in mortgage availability has had a huge knock on effect and consumers and the industry need assistance from the government and relevant bodies to help relieve these current restrictions on the mortgage market. If the shackles can be removed then the flow of buyers can start to move once again."

House Price Predictions: On What the Future Holds for House Prices

The Council of Mortgage Lenders commented:

“News coming out of the housing and mortgage markets remains downbeat, but very much as expected. There will not be much change in the coming few months. But, providing the authorities manage to free up the credit markets, we anticipate an improvement later in the year. At the same time, the Bank of England finds itself under pressure as global events cause inflation to rise, and economic growth to slow.
“There is unlikely to be any immediate assistance from lower official interest rates. The story of rising inflation (through higher food and commodity prices) and slowing growth is one seen across the globe, and one over which the Bank has no direct control."

Martin Ellis, chief economist at Halifax, said:

“Employment increased by 117,000 in the three months to March compared with the preceding quarter and stands at a record high 29.54 million. The UK economy is forecast to slow during the course of 2008, recording below trend growth for the first time since 2005. We expect unemployment to rise somewhat during the year due to this easing in growth. The scale of the increase in unemployment is unlikely to cause widespread difficulties for households."

Jeremy Leaf, Royal Institute of Chartered Surveyors spokesperson, said:

"While demand remains weak and housing transactions continue to evaporate, there is a very real danger to the wider economy. The property industry will not be the only casualty in the fall out from the credit crunch, with the high street and purveyors of a range of household goods, including furniture and white goods also feeling the pinch. Construction workers such as plumbers and bricklayers will start to see employment opportunities dry up as the pace of housing transactions continues to abate."

Chris Wood, Vice President of the National Association of Estate Agents, said:

"There is no denying that the credit crunch has affected confidence in the market - but it is still important to remember that the underlying factors that support the property market remain: low unemployment, historically low interest rates and a pent-up demand for houses. Therefore, rather than a dramatic fall that some "doom and gloom" merchants are predicting, it shows we are looking at a return to a more steady market rather than the fantastic price hikes we have seen in the previous 10 years."

Andrew Montlake, partner at mortgage broker Cobalt Capital, says:

"It should be remembered that this is a drop from the historically very high figures of last year, and in reality 2008 is still set to be probably the fifth highest mortgage lending year since records began.”

House Price Predictions: Should You Buy or Sell Now?

Phil Cliff, Director of Abbey Mortgages, said:

"For some people a falling house price environment is not necessarily bad news. While the majority of homeowners are planning to stay put and wait for the current volatility to end, two million think that house price falls are a good reason to move. This could be because house price falls bring a larger property within their grasp or because they think they can cash in if they sell up now and wait for the market to hit its bottom."

David Kuo, Head of Personal Finance at Fool.co.uk, says:

"There is still a gulf between the price of a typical home and the average size of an approved mortgage. According to the Bank of England, 58,000 mortgages for a total of £8.3 billion were agreed in April. This implies the average mortgage taken out was £143,103. So, in order to afford the typical home, buyers have to finance the 22% difference of £41,008. This may either be through any equity they have built up in their existing property or from savings put aside for a deposit.

"But there is a third way. With house prices predicted to fall 20% this year, the typical home will cost around £160k in December. Consequently, buyers are now in a strong position to drive a hard bargain. Over the last decade, house buyers have had to dance to the tune of sellers as house prices rose. However, in a buyer's market, it is he who pays the piper that calls the tune. Every £10,000 that you can slash from the asking price will shave £64 a month off your monthly repayments. This equates to over £19,000 on a 25-year repayment mortgage. But even though the tables have turned, buyers still need to tread carefully. Negotiations are all about win-win."

Read more recent house prices reports:

House Prices Continue to Fall

Halifax’s latest monthly property price survey reveals house prices in May fell for the 7th consecutive month by 2.5 percent - the largest fall ever recorded by the study.

House Prices Drop & Housing Demand is Curbed

New research reveals house prices have significantly dropped and the demand for housing in the UK is limited.

Repossession: The UK’s Worst Fear

As the housing market continues to stay in limbo, lending criteria remains strict and monthly mortgage repayments are hiked up, a new study claims most home owners in the UK increasingly fear repossession.