There is a one-in-10 chance that the UK is heading for a '1990s-style' UK housing market crash, the Royal Institution of Chartered Surveyors warned yesterday, after scaling back its expectations for house price inflation.
Simon Rubinsohn, the RICS's chief economist, said his base case was for flat house prices across Britain in the next 12 to 15 months, down from an earlier forecast of three per cent growth.
He also said there was a "20 per cent chance of a 10 per cent" decline in London house prices over the next 12 months, and said talk of a looming "crash" was legitimate and not irresponsible.
But like other housing market experts he said homeowners were unlikely to see a repeat of Britain's previous housing slump, when average prices fell by an inflation-adjusted 35 per cent from their peak in 1989, according to data from property services firm CB Richard Ellis.
Peter Damesick, head of UK property research at CB Richard Ellis, said the chances of a housing market crash were still "pretty small" because there was no obvious trigger in the offing such as the economic downturn or sharp interest rate hikes seen in the early 1990s.
Mr Rubinsohn said the RICS was not reacting simply to mortgage lender Northern Rock's cashflow woes, which have been pushing up mortgage rates and could reduce the availability of credit, but had already been scaling back its expectations in the wake of previous UK interest rate rises.
Those interest rate rises now appeared to have run their course, economists said, leaving the Bank of England with enough room to cut them if housing market conditions worsened significantly next year.
"The risks in the near term are to the downside but further out, where there is scope for offsetting policy actions to take effect, we are more confident," said Michael Taylor, senior economist at Lombard Street Research, which was sticking to its view of negligible average house price growth in 2008.
Nationwide Building Society warned at the weekend that house price growth could halve as a result of the current credit crisis.
Fionnuala Earley, group economist at Nationwide, said the global financial crisis would exacerbate the impact of rising mortgage rates and could make the current slowdown in the housing market worse.
She now expects house price inflation to slow to just three per cent next year.
But Ray Boulger, senior technical manager at John Charcol, said there were unlikely to be house price falls, adding that the problems in the credit markets could be good for house price inflation in the long run.
He said: "Saying there is a one in 10 chance (of a house price crash) is more or less saying they don't think it is going to happen.
"The last quarterly survey from Halifax showed three regions with small falls and I think for the second half of this year we will see prices pretty well flat-lining.
"Most people think the credit crunch will have a negative impact on house prices and I think in the short term that will be right, but looking ahead a few months, I think it will have a positive impact."
He said the biggest factor affecting house price growth was interest rates, and while people had been expecting these to rise further to six per cent, it now looked likely that they had peaked and might even be coming down soon.
He said: "House prices will flat-line for at least six months, but I don't think we will see steep falls."
But he added that the top end of the London market looked "exposed" as the factors that had been driving that, such as high bonuses and high levels of merger and acquisition activity in the City, would be hit by the current credit crisis.