House prices due to fall by 11 per cent

House prices could fall by 11 per cent, predicts Coutts – Her Majesty the Queen’s bank – as it turns bearish about the property market.

Commentators argue that Coutts’ analysis is more methodical than most. The bank considers five factors to assess the prospects for house prices – economic activity, valuation, liquidity, risk and momentum – and reckons that the negatives currently outweigh the positives for UK residential property.

Henry Lancaster, senior investment analyst at Coutts, said: “Economic activity is negative. With the economy in recession, unemployment rising and wage growth sluggish, the domestic economic environment is unsupportive for house buyers.

“Valuation appears expensive.  House prices have broadly kept track with the growth of nominal – that is, not adjusted for inflation -gross domestic product (GDP) – a measure of economic output – over the past 60 years, reverting back to trend after both booms and busts.  House prices are currently 11 per cent above their average value against nominal GDP.

“Our conclusion is that UK residential property appears unattractive as an investment. Prices appear to have been bid up by investors seeking ‘safe havens’ to preserve their wealth given record low interest rates. However, the UK residential property market is far from risk-free.”