Is Britain on the brink of a house price CRASH?

THIS country has a long and painful history of booms and busts in the housing market. It is something of a British disease.

And fears are mounting that the next bust is around the corner as the economy slows following the vote to leave the European Union.

A Bank of England report yesterday indicated house prices could fall on average by around 15pc to 20pc – although governor Mark Carney insisted this was not a prediction and instead represented where its economic model suggested prices could end up after Brexit. That would knock more than £40,000 off the national average house price of £205,000, and nearly £100,000 off a home in London.

Although there is little in monthly house price figures to suggest the property bubble is about to pop, worries about the outlook have been reflected in the share prices of UK housebuilders since the referendum.

Blue-chip builder Persimmon was down another 7.1pc yesterday – taking losses since the Brexit vote to 33pc – despite a bullish trading update. The company said business in the first half of the year was ‘strong’, with revenues up 12pc to £1.49bn after sales of new homes rose 7pc to 7,238 and average selling prices increased 6pc to £205,500. It also said it was confident it would deliver its plan of returning £2.8bn, or £9 per share, to investors by 2021.

Persimmon insisted it was ‘too soon to judge the effect the result of the EU referendum will have on the UK new homes market’ and added: ‘The group remains committed to building the new homes across the country that Britain needs.’

Jolyon Harrison, chief executive of regeneration specialist MJ Gleeson, was also upbeat, declaring that it is ‘business as usual’ and adding: ‘The EU referendum has not affected our customer base, for whom the decision to become homeowners is not influenced significantly by market or media sentiment.’

There was less good news from St Modwen, however, which said it was taking ‘a more cautious approach’ to the UK following the vote. Falling property prices in Nine Elms in Battersea, London, resulted in a £21m reduction in the valuation of its share of the New Covent Garden Market development. This includes 3,000 homes. The scheme has been hit by higher stamp duty and slowing interest from overseas buyers.

Shares across the sector tanked once again, with Gleeson down 5.5pc and St Modwen 10.3pc. Persimmon’s FTSE 100 peers were also on the slide, with Barratt Developments down 37pc since the referendum, Taylor Wimpey 34pc and Berkeley Group 28pc. Mike van Dulken, head of research at Accendo Markets, said housebuilders ‘are being singled out as the most exposed’ to a post-Brexit slowdown. Of Persimmon’s latest slide, he added: ‘The share price decline is all down to Brexit uncertainty outweighing the positive financials and management’s confidence falling on deaf ears. Once again, results are worth nada, outlook is king.’ Laith Khalaf, senior analyst at Hargreaves Lansdown, added: ‘People aren’t suddenly going to stop wanting to own a home simply because the UK is no longer going to be a member of the European Union. However, until we get a picture of housing activity following the referendum result, the stock market is likely to push the sell button first and ask questions later.’

In its Financial Stability Report yesterday, the Bank of England identified household debt – stemming mainly from the housing market – as a threat to financial stability following the referendum. The central bank warned that ‘the outlook for economic activity and employment has deteriorated’ at a time when household debt ‘remains high by historical standards’ at 132pc of household income.

‘The ability of some households to service their debts would be challenged by a period of weaker employment and income growth,’ the report said. ‘Highly indebted households are particularly vulnerable.’ This can create problems. Households suddenly struggling with their mortgages, perhaps because of job losses as the economy slows, may cut back on spending and drag down the economy that way. Or they could fail to pay back their loans which in turn piles pressure on banks and building societies.

There is also a fear that buy-to-let landlords will offload properties if they start to fall in value or if their own circumstances change – a move that could depress prices further.

Dr Howard Archer, chief UK economist at research group IHS Global Insight, said he expects house prices to fall by 5pc in the second half of this year and by between 5pc and 7pc next year. ‘Housing market activity and prices now look to be at very serious risk of an extended, marked downturn,’ he said. But he added that a number of factors ‘should help to limit the downside for house prices’, including a likely cut in interest rates and the shortage of properties on the market.

Figures from the Home Builders Federation show more than 180,000 homes were built last year. This is up 22pc on the previous year but nowhere near enough. Almost a third of young people, some 3.4m, are living at home with their parents and 1.24m people are on housing waiting lists.

‘We still face an acute housing shortage,’ said Peter Andrew, deputy chairman of the HBF. ‘We are over a million homes short of what the country needs.’

There are also huge regional differences in UK prices. A dent in prices in the most pricey parts of the country would likely be greeted with glee. Lower prices would be good for first-time buyers struggling to get on the housing ladder – so long as banks are still willing to lend and they can afford to borrow.

The fall in sterling since Britain voted to leave the European Union – it is down around 13pc against the dollar – also makes housing in the UK attractive to foreign buyers. Jan Crosby, head of housing at KPMG, said the market was likely to remain subdued until next year. She added: ‘Given there is always going to be demand for housing, and assuming there is some economic stabilisation in the next six to nine months, we can expect more normality to return in the spring. London demand may be hit for longer, albeit it will recover given its global city status in or out of the EU.’

Ray Boulger, at mortgage broker John Charcol, said Brexit was not a reason to put off buying a house. ‘I’d advise people who have been looking for a property for a long time, and finally found one they want, to just go for it,’ he said.

Carney’s message to families was clear. ‘We are advising people to be prudent,’ the governor said.

‘Certainly, if you are taking out a mortgage, at some point over the life of that mortgage, times will be difficult. You want to make sure as a family or as an individual you can service that mortgage when times are difficult. You don’t want to lose your house of flat.’

‘We still face acute housing shortages’ ‘Times will be difficult’