House prices 'to plunge 40%'
HOUSE prices will fall by 30% to 40% during the next four years, one of the City's most successful fund managers has warned.
Neil Woodford, who manages funds worth £6bn at Invesco Perpetual, is preparing for a sharp decrease in property prices. His forecast, which he describes as a 'healthy correction', would bring the average price of a home from £153,700 to £92,200.
His claims mirror last week's International Monetary Fund report that said UK house prices were out of touch with underlying conditions in the economy.
Woodford said consumers' heightened sensitivity to higher interest rates would send prices markedly lower, adding: 'People have borrowed a hell of a lot more money than they have ever borrowed before.'
He said that while a house price fall of this magnitude would only bring prices back to where they were 18 months ago, even that would hit the economy.
Woodford said he was steering clear of companies linked to the housing market, construction, retailing and banking. He has invested heavily in stocks such as tobacco.
The IMF said Britain's economy was particularly vulnerable to a house price fall, because many buyers had variable rate mortgages. The Bank of England has raised its base rate five times since November 2003 to 4.75%.
Useful links
