- The spectre raises the possibility of the return of ‘negative equity’
- This is when a house falls so far in value that its worth less than the mortgage
- A shift could push thousands of recent buyers into housing trouble
- Experts warned that we are due for a ‘significant correction’ in housing prices
House prices are teetering on the brink of a crash that could be as bad as the bust of the early 1990s, a leading expert has warned.
There are already warning signs that prices are heading towards a near 40 per cent plunge, warns Paul Cheshire, Professor of Economic Geography at the London School of Economics.
It raises the alarming spectre of the return of ‘negative equity’ – when a house falls so far in value it is worth less than the mortgage – which hit one million people at the worst point in the 1990s.
The crash could be as bad as the bust of the early 1990s, one leading expert warned
Speaking exclusively to The Mail on Sunday, Prof Cheshire, a former Government housing adviser, said: ‘We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting.
‘Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.’
This graph shows how growth rates had consistently fallen over the last year – and may continue to slump further
Such a shift could push many thousands of recent buyers into trouble. From 1989, the price boom fell apart over the next six years, with prices plunging by 37 per cent.
In its most recent figures, The National Association of Estate Agents reported the number of homes sold in May for less than the asking price rose to 77 per cent.
According to Prof Cheshire, the fall in real incomes – when wages fail to keep up with inflation – is likely to be the spark for a fall in house prices. Inflation hit 2.9 per cent last month, while incomes only grew by 2.1 per cent.