The City is betting on UK house prices falling by 7% next year in new tradeable derivatives contracts, one indicator of the market’s direction as millions of pounds are riding on the outcome. Financial Time

These future housing contracts, which were published for the first time this year and have seen a surge in trading volumes in the past few months, are predicting much bigger falls in property values than other non-tradeable forecasts.

he Nationwide building society expects house-price inflation to fall to zero in a year’s time, while Capital Economics expects a 3% fall in prices.

The derivatives contracts are also pricing much bigger falls next year than they were a month ago, when they were predicting a 2% decline.

Peter Sceats, a derivatives broker at TFS Property, said: Bankers, hedge funds and property companies are putting their money where their mouth is and that makes these prices more reliable than economic forecasts in many respects.

'Bankers who are making these trades can get it wrong, but with contracts worth up to £100m it makes it more important that they get it right. It is interesting that they are more gloomy, but maybe that is because there is money involved.'