High street will feel shock of house sales collapse, warns Rics

High street will feel shock of house sales collapse, warns Rics

A collapse in house sales over the next year could provoke a cut in consumer spending by as much as 8% and decimate the high street, according to a report yesterday by the Royal Institution of Chartered Surveyors (Rics). Spending on home furnishings, white goods and DIY products could slump as the number of people moving home dries up, it added.

The report was echoed by analysis from online property seller Rightmove, which said the banks' clampdown on lending, especially to first-time buyers, was crippling house sales.

The views by respected property industry experts are likely to intensify the debate inside the Bank of England's monetary policy committee, which is under pressure to cut interest rates as the economy slows. Mervyn King, the Bank's governor, said recently that the committee was mindful of inflationary pressures when it agreed last month to keep base rates at 5%.

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However, the committee is also concerned that without interest rate cuts it could prolong the credit crunch and send the economy into reverse. If rates are not cut over the next few months, many economists fear there could be a sudden and prolonged drop in consumer spending, with the knock-on effect of shop closures on the high street and heavy job losses.

Rics said there was a real danger that the lending squeeze would see the number of housing transactions fall by more than 40% by the end of the year. At the moment the year-on-year drop in housebuying has reached 31.7%. Rics' chief economist, Simon Rubinsohn, said: "The second half of 2008 will prove a difficult period for the housing market. Money looks set to remain tight and many will continue to find that access to the market is restricted by cautious lenders. Demand will remain pent up, with many watching the high-street banks for any sign of a softening in lending criteria."

He added: "It is very worrying that property transactions could fall by as much as 40% this year. This could have important ramifications for the wider economy, not only hitting the property industry directly but also impacting on a broad range of related sectors, whether that is the high-street purveyors of home furnishings and white goods or financial intermediaries involved in providing mortgage advice."

Despite its doom-laden analysis of house sales, Rics said it remained confident that prices would dip by only 5% by the end of the year. Contradicting many economists who believe the drop could be as much as a third, it said the fundamentals of the economy were still reasonably robust and pent-up demand for homes remained a feature of the housing market. High employment levels added to demand while the recent collapse in new home building by private-sector developers had reduced supply, it said in its monthly housing forecast report.

Rics said home repossessions would rise to about 43,000 in 2008, but would remain well short of the previous high of 77,000 a year set in the early 1990s.

"Homeowners are less vulnerable to repossessions than during the early 1990s' housing market crash. There is little evidence in Rics' analysis that distress sales, which characterised the 1990s, are picking up. Hundred per cent mortgages have not been as common during this cycle, indeed Rics estimates that the average loan-to-value ratio between 2005 and 2007 was in the region of 85% compared with 90% in the period between 1985 and 1989."

Rightmove said most house sellers recognised that sales prices were falling, but sellers of large family homes in the south-east appeared convinced they could buck the trend. A spokesman, Miles Shipside, said national asking prices reached a new high of £242,500, up 1.2% on the previous month, led by a 4.2% rise in asking prices in the south-east.

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