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Halifax: House prices to fall 20%

Thursday, 31 July 2008 12:00 AM

HBOS has issued a gloomy warning to the property market, predicting house prices could fall by as much as 20 per cent before the end of next year.

The lender - recently displaced as the UK's largest by Abbey - also expects a rise in mortgage arrears over the next year.

Before the release of today's half year figures Halifax had predicted prices would fall by just nine per cent.

Just yesterday Lloyds TSB released half year results which included a prediction house prices would fall by ten to 15 per cent over the period.

This makes HBOS one of the gloomiest predictions to date, and follows research released by Nationwide today, showing prices are now falling at the fastest rate since 1991.

HBOS also predicted tough times ahead for the economy, as profit fell 72 per cent to £848 million for the first half of 2008.

Underlying pre-tax profits were significantly affected by a £1.095 billion writedown following the credit crunch, the lender said.

Losses from bad debts increased by 36 per cent to £1.310 billion, from £963 million in the first half of last year, HBOS added.

The lender is also "cautious" about the outlook for global financial markets and said it is adapting for a tougher economy.

Yesterday, rival Lloyds TSB shocked the market with a 70 per cent decline in profit.

Chief executive Andy Hornby said: "The first half of 2008 has seen the dislocation in financial markets evolve into a wider economic slowdown."

The decline in house prices over the first half of the year has prompted HBOS to tighten its lending criteria, and the average loan-to-value on its books is now 48 per cent.

The bank's prediction for the UK economy is somewhat gloomier than other forecasts. HBOS said the UK's GDP will continue to grow this year but there is a risk the economy will shrink in 2009, signalling a recession.

Unemployment is also set to rise, the lender predicts.

The group, which operates Halifax and Bank of Scotland, announced a £4 billion rights issue during the period to boost its capital.

However, its share price fell below the issue value and only eight per cent of shareholders took up the offer. It was left to the bank's underwriters to buy the rest.

The bank's tier 1 ratio, a measure of its financial strength, is now at 8.6 per cent, compared to 7.3 per cent without the rights issue.

Sarah Routledge with additional reporting by Chris O'Toole

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