Messy end for the house party

20 November 2007 By Ian Campbell

The difficulties of the buytolet lender are a clear sign that that the UK house price party is over. Will Britain follow the US model house price falls and slowing growth feeding off each other? Rate cuts may hold off the worst, but the UK economic outlook is dark.

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Paragon, the UK's thirdbiggest provider of buytolet mortgages, warned on Tuesday that it is having difficult raising funds and may need to request £280 million from shareholders.

The Royal Institution of Chartered Surveyors reported that its gauge of the UK housing market dropped in October to minus 22, the worst reading since July 2005. Expressions of interest by new buyers fell for the eleventh consecutive month.

Fionnuala Earley, Chief Economist of the Nationwide Building Society, which tracks house prices, wrote on November 16 that A number of factors suggest that house price inflation will drop from its current rate of 9.7% to 0% by this time next year…a slowing economy, tighter credit conditions, stretched affordability for firsttime buyers and lower house price expectations appear likely to reduce the level of activity.

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