Video report by Lucia Adams

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What is the latest house price forecast?

How to avoid the worst of the property market slowdown

The forecast is getting gloomier, but there are ways for canny buyers and sellers to avoid the worst of it

BACKGROUND

• Who's to blame for the housing market slowdown?

• Housing market: property prices in Britain's hotspots and notspots

• The luxury property market shrugs off the slowdown

• Families at risk of negative equity

Q&A: is there any chance of some good news?

Why do mortgage lenders not want customers? Is it now impossible to get a loan? Will borrowing soon get cheaper?

BACKGROUND

• Video: A good time to invest in property?

• Will the global credit crunch dampen housing demand in spring?

• Country homes in short supply despite slowdown

• Credit crunch: questions and answers

How to fight your way out of a housing market slowdown

Do you have the clout to tough out the downturn? Emma Wells and Lucy Denyer sort victors from victims

BACKGROUND

• The buy-to-let market is thriving, but too risky for most newcomers

• 20 ways to avoid mortgage meltdown

• Recession and repossession: surviving a great fall

• First-time buyers hit as lenders pull plug

Related Links

• A step-by-step guide to selling your home

• Ten things you need to know about... adding value to your house

The struggling property market is in increasing danger of being propelled into a slump. Yolande Barnes, the head of residential research at Savills, has given warning that prices may plunge 25 per cent over the next two years unless the credit crunch is resolved quickly. With the shortage of home loans paralysing the market, Barnes predicts that the best we can expect will be falls of 4 per cent this year and 2 per cent next year. The worst case that she envisions is a fall of 10 per cent in 2008 and one of 15 per cent in 2009.

Do other agents agree?

Knight Frank has also unveiled a new, much gloomier, picture of the property market. In October, the agent was predicting price increases of 3 per cent for 2008 - but now Liam Bailey, the head of research, says that a fall of 3 per cent looks likely. And, if the credit crunch persists, he believes the slide could be as severe as 10 per cent.

Are these the gloomiest predictions yet?

Capital Economics, Global Insight and some other commentators have predicted potential falls of 20 per cent or more over the next two years. And this week David Blanchflower, a member of the Bank of England monetary policy committee, said that prices could drop 30 per cent if “aggressive action” is not taken to stave off recession. But these downbeat predictions from Savills and Knight Frank represent the the first time that leading agents, who watch residential property more closely than many observers and who have remained relatively upbeat, are joining in the chorus.

Is this a repeat of the 1990s slowdown?

Falling house prices, rising repossessions and the spectre of negative equity may feel like the housing market crash of the 1990s. But Richard Donnell of Hometrack, the property data company, believes current conditions are closer to the short-term slowdown of 2004 and 2005.

What is different?

Yolande Barnes, of Savills, agrees that conditions differ: in the 1990s interest rates doubled quickly, leaving houseowners without enough income to cover mortgages. Most homeowners still have scope to adjust household budgets to cover rising costs, despite rocketing food and fuel prices, which will keep repossessions relatively low as long as the employment outlook does not worsen.

How long will recovery take?

It is hard to say. Barnes sees parallels with the “mortgage famine” of 1974, when lenders suddenly restricted the supply of home loans. Sales dropped and house price falls in real terms followed for several years, as property values were left behind by rampaging inflation. In this case, Ms Barnes thinks that quick action could ensure recovery begins in 2009 or 2010. But the troubles may drag on until 2012, if the credit crunch doesn't loosen its grip.

But the Government is stepping in, isn't it?

The unprecedented £50 billion mortgage bailout - in which lenders will swap home loans for safer government bonds - should shore up the market over the long term. But observers say that it will provide little immediate relief. Lenders continue to withdraw products, limit access and increase their margin on those deals with remaining customers. Just a week ago, Halifax increased the cost of some of its loans by 0.6 per cent.

Is it gloom everywhere?

It seems so. Savills' latest figures blame the credit crunch for the spread of house-price falls across all regions. In the first quarter of this year, prices dropped 2.5 per cent across the UK, with homes in the North West and South West worst hit. The latest Hometrack data, out this week, indicated that prices are declining across 51.4 per cent of postcodes in the country. The latest data from Nationwide records that house prices across the country have fallen 1 per cent in the past 12 months, the first year-on-year fall recorded since March 1996.

Are there any winners?

The only group of home-owners not feeling the pinch are the “super wealthy”, according to Savills. This group - largely overseas buyers - own properties in the best parts of Central London and have no need to borrow money. The lavish homes they favour, priced at more than £5 million, are hard to find and are thus keeping their value best.

And the losers?

The “merely wealthy”, typically homegrown City buyers, are looking on the international wealthy with an envy more intense than usual. For they need to borrow and to stay in work to meet their mortgage costs, leaving them vulnerable. This has contributed to the sharp falls in Notting Hill, Fulham, Chiswick and Richmond recorded by Savills.

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