House Prices: Nosedive Warnings Must be Taken Seriously

10.52.19am BST (GMT +0100) Fri 3rd Oct 2003

Forecasters at Capital Economics have warned that the house price boom is unsustainable and a fall of up to 20% may happen in the coming months. Halifax today released figures showing house prices continue to rise by 1.5% in September. Vincent Cable MP, Liberal Democrat Shadow DTI Secretary, said:

"This is a very timely warning to people who are building up unsustainable levels of debt. Lending for house purchase is at the highest monthly level since records began and average household debt is now more than 30% higher than average income."

"Many people are living in hock and on the very edge of their budgets. If these experts are right about a house price nosedive, many will not be able to sustain repayments. We will see a return to repossession and debt default and all the personal stress and hardship that this brings. With almost 70% of households owning their own home, this will effect a huge number of people."

"The massive rise in consumer and mortgage debt has been based on the assumption that interest rates will remain low and house prices continue to rise. This is a fool's paradise."

"It is for the Government to let people know the dangers they are getting into, but Gordon Brown dare not, as his spending targets rely on the growth delivered by the consumer boom."

"This Government has presided over a massive 50% increase in average household debt. It is time they took a careful look at the uncontrolled expansion of debt. A careful eye needs to be kept on the lending practices of banks and credit agencies who are fuelling the debt boom with irresponsible lending."

ENDS (see Notes to Editors)

Dr. Cable's 7 point plan for dealing with the debt crisis is:

1. Crack down on exploitative loan sharking, with tough legislation to tighten up the issuing and monitoring of credit licenses, coupled with harsher penalties for those guilty of bad practice.

2. Outlaw completely any early settlement penalty to encourage the clearance of debt ahead of schedule.

3. All credit products must be brought within the regulatory control of the Financial Services Authority - including those marketed as debt management solutions and home reversion equity release schemes.

4. The publication by the Government of strict measures for responsible lending, which lenders must be required to observe.

5. Excessive interest rates on store cards and credit cards to be

policed far more vigorously by the competition and trading authorities.

6. Curb the tidal wave of unsolicited credit promotion by demanding a prominently displayed "Credit Health Warning".

7. Ban the practice of sending unsolicited application forms for credit cards, loans and other credit products.