House prices to fall in painfully slow recovery, says Nationwide

Published on Friday 20 November 2009 21:46

HOUSE prices are predicted to fall next year as one of the country's biggest lenders warned of a rising unemployment prolonging the recession.

Nationwide Building Society says interest rates could remain at a record low until at least the final quarter of next year as the slow recovery continues to drag down the economy.

Britain's biggest building society has also criticised regulatory changes, which it blamed for impeding the mutual sector.

Nationwide, the UK's third-biggest mortgage lender, revealed that its own profits had fallen by more than 60 per cent in the downturn.

And it blamed the set-up of government-owned banks for an outflow of 5.6 billion as customers fled to what they felt were safer, state-owned institutions.

Pre-tax profits were 117 million in the six months to the end of September compared with 322m the same time last year.

But Nationwide made a gain of 40m from failed rival Dunfermline's social housing loans, which it took over this year.

A lack of supply and low interest rates have boosted the housing market this year, but Nationwide said prices could go into reverse with unemployment set to rise further and a stock shortage showing signs of easing.

Nationwide's chief executive, Graham Beale, said: "That phenomenon (tight supply] has now almost played out and we are back to more normal levels of demand for property.

"We are cautious about where unemployment is going. If it does rise significantly, that will have a downward pressure on house prices in the new year."

Mr Beale cautioned against the European Union's strict new capital requirements for financial institutions.

He said: "Whilst we welcome many of the proposals and will fully support the objective of creating a more secure framework for banking regulation, we remain concerned that some of the changes could undermine the future of the building society sector, which the government has said it wants to protect.

"It is critical that the fundamental changes being contemplated in relation to capital adequacy do not result in restricted access to capital markets for building societies."

After sharp falls last year, house prices have gradually risen in recent months. Halifax, the UK's largest mortgage provider, said prices had risen 1.2 per cent in October.

The Organisation for Economic Co-operation and Development warned this week that Britain was on course for an unemployment level of 9.5 per cent – or more than three million – by 2011, up from the current jobless rate of 7.8 per cent.

Yesterday's bad results for the Nationwide were partly blamed on bad debts from business failures, weak tenant demands and reduced investor appetite for commercial property.

Nationwide said its first-half earnings had been hit by compressed margins, bad debts and an outflow of savings as consumers shifted to government-backed banks.

Nationwide's own customer arrears remained well below those of its rivals, with 0.66 per cent of accounts more than three months in arrears, compared with an industry average of 2.4 per cent.

Its total impairment charge, however, remained high at 317m after a 320m charge in the six months to 4 April, hit by the decline in commercial property values.