Housing market rout to last up to two years more

By Ross Finley

LONDON (Reuters) - British property prices will fall 15 percent this year, another 10 percent in 2009 and will take up to two years to stabilise despite the prospect of several more interest rate cuts, a Reuters poll showed on Friday.

The poll of 38 analysts at banks, investment firms and consultancies had far more pessimistic conclusions than a similar survey taken just two months ago and underscores how decisively sentiment has turned against a once-soaring market.

While median forecasts showed average house prices will fall by about a quarter from peak to trough, several said that they would fall 30 percent or more and three analysts predicted they would crash 40 percent from their highs.

Forecasters have become much more bearish than they were in August, when the median predictions were for a 7 percent fall this year and 8 percent in 2009.

"Although the housing market correction is a necessary evil, the credit crunch is exacerbating the speed of the correction," said Peter Dixon, economist at Commerzbank.

"We are now beyond the stage of interest rate cuts bailing out the housing market -- we are in the midst of a wholesale rebalancing of the economy, and the housing market stands right at the heart of the problem."

The survey makes grim reading for anyone who bought a property in the past few years when UK banks were handing out mortgages at historically low rates with historically low restrictions on how much an individual could borrow.

A 25 percent fall would wipe about 50,000 pounds off the average property value, based on a peak average house price of just under 200,000 pounds struck in August 2007 using the Halifax index. But that follows a more than tripling in house prices over the preceding decade.