House prices in Britain are overvalued by about 30%, the HSBC said yesterday, sounding the alarm that the property market could suffer a similar slump next year to that experienced in the US. The Times
The alarming report from the bank’s chief UK economist, which gave warning that the coming property downturn would cause sterling to plummet and force the Bank of England to slash interest rates aggressively, came as official data revealed the fastest fall in London house prices for more than two years.
HSBC tried to model the fair value of housing based on expected future rental growth. Karen Ward, the report’s author, said: 'There is around 30% of the current house price level that cannot be explained.'
The findings echo those of the International Monetary Fund which last month calculated that homes in Britain were overpriced by up to 40%.
The credit squeeze would now prove the trigger for Britain’s housing slowdown, HSBC argued. Higher mortgage costs would spark repossessions and make buy-to-let a poor investment. 'A major source of demand in the past couple of years could then turn into a major source of supply,' the report said.
A slowdown in residential construction and consumer spending would then follow, causing growth to fall to its lowest level in a decade, the report said.