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House prices to crash 30 per cent, Barclays chief executive John Varley warns

House prices will crash a further 15 per cent next year, the boss of high street bank Barclays has admitted.

 

By Myra Butterworth, Personal Finance Correspondent 
Last Updated: 8:52AM GMT 15 Dec 2008

John Varley of Barclays Photo: Daniel Jones

In a remarkably candid interview, John Varley, the group chief executive of Barclays, warned that Britain is only mid way through the house price slump - meaning the total fall could be as much as 30 per cent.

He described as "madness" the previous lending policies' of banks, in which 100 per cent mortgages and beyond were approved.

Mr Varley admitted that banks were partly to blame for the current recession, saying it was time they showed "humility" and said "sorry" to customers for their role in the sharp economic downturn.

He said banks needed "to take their share of responsibility".

It is the first time that the chief executive of a major bank has spoken so openly in the current climate about the role lenders have played in the sharp turnaround in home owners' fortunes.

The admission comes on the back of the Government giving banks billions of pounds of financial support following the worst banking crisis since 1929. Barclays did not receive government funding.

Mr Varley's comments, made to Jeff Randall, the Daily Telegraph's editor-at-large and to be shown on Sky News this evening, are a dire warning to families across Britain who have already seen the value of their savings and homes plummet amid the credit crisis. They could dissuade potential buyers from seeking loans or moving home. Jonathan Cornell, of mortgage brokers Hamptons Mortgages, said Mr Varley's comments could aggravate the situation further.

The average home in Britain has already dropped £36,000 in value since August last year, according to the country's biggest lenders Halifax. Its latest figures show the average value is now just £163,605.

A further 15 per cent fall would see the average value of a home crash by an additional £25,000 to less than £140,000 based on these figures.

Mr Varley said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30 per cent. I suspect we're about halfway through that at the moment. I mean that slowdown, the negative house price inflation started in 2007, it's accelerated in 2008.

"We're probably about halfway through that period, so in other words we've got another 10 to 15 per cent to fall between now and the end of next year. That would be our assessment."

The house price crash has already left many homeowners in negative equity, where the value of their home is worth less than their mortgage.

In the early 1990s, when house prices fell by 10.6 per cent over a prolonged period, 1.8 million home owners had to stay put or face losing thousands when they sold up.

The borrowers who are most vulnerable are those who bought a home with a loan of at least 100 per cent of the value of their property.

At the height of the property boom, when banks were more willing to lend, loans were available at 125 per cent of the value of a property.

Asked for his reaction to the practice, Mr Varley said: "Looking back on it, madness."

Mortgage experts said that lenders would need to offer a wider range of deals to borrowers before the property market showed any signs of recovery.

Melanie Bien, of mortgage brokers Savills Private Finance, said: "Those hoping that the bottom of the housing market had already been reached will have to wait a bit longer with around another 10 per cent drop in prices in 2009 forecast.

"It will then be a while before prices recover but once the bottom has been reached, potential buyers will once again show an interest in purchasing. All we need then is more choice of product at 90 per cent loan-to-value with better rates than are currently available to help first-time buyers in particular onto the housing ladder."

Home sellers have been forced to lower their asking prices dramatically in the past month to achieve a sale.

Around £5,000 was knocked off the average price of a home in the past month, according to property website Rightmove.

It said the average value of a home in Britain dropped from £222,979 in November to £217,808 this month, a fall of 2.3 per cent. House prices are now 10.2 per cent down from May this year.

The figures are higher than those produced by Halifax as they are based on asking prices rather than completions.

Rightmove forecasts that house prices will fall an extra 10 per cent by the end of next year. However, its survey also suggested that the sale prices actually being achieved by estate agents is already down 25 per cent since May.