House prices 'will crash soon': Bank chiefs warn YOUR home is overvalued by 30 per cent...
Over-valued house prices: IMF has warned that house prices will have to be corrected...
House prices are 30 per cent too high in the UK and could soon crash, the International Monetary Fund warned yesterday.
After a decade-long housing boom, it fears Britain is one of the most vulnerable countries in the world to suffer a devastating price collapse.
In a further blow, both the Bank of England and mortgage brokers warned that the mortgage meltdown is going to get even worse.
The number of mortgage deals available has collapsed 13 per cent since Monday and 70 per cent since last summer's credit crunch began.
David Hollingworth, a mortgage broker at London & Country, said: "It has got to be one of the most rapidly changing and volatile weeks any of us can remember. The credit crunch has really got a grip on the mainstream mortgage market and there is nothing you can look to that shows the situation is going to improve in the near future."
The Bank of England is widely expected to cut interest rates by 0.25 per cent to 5 per cent on Thursday.
But experts say this will make very little difference as lenders have been increasing their rates rather than passing on cuts to customers.
Ray Boulger, of Charcol mortgage brokers, said a cut of 0.75 per cent was needed just to put people in the position they would normally be in if interest rates were at 5.25 per cent.
The IMF said the UK has experienced one of the world's "largest unexplained increases in house prices" over the past decade.
If its doom-laden prediction is correct, an average home - currently worth £196,000 - could actually be worth just £137,000.
For homes in the South East, typically worth £400,000, the drop will be even more severe, down to roughly £280,000.
The warning comes after 12 years of rocketing house prices. When the boom began in 1996, the average price was just £60,000.
The IMF's World Economic Outlook said it has identified a "house price gap", which is the difference between the price of a home and the country's economic fundamentals.
They include salaries, interest rates and population growth.
Ominously, a similar IMF report at the end of 2007 found the U.S. housing market - currently in meltdown - was just 10 per cent too high.
The Bank of England's regular survey of the country's biggest lenders, published yesterday, shows they expect the mortgage crisis to get even more serious over the next three months.
Lenders said more mortgage deals will disappear and the rest become more expensive.
Yesterday morning there were 4,754 mortgage deals. By the end of the day, that had dropped to 4,329, according to the information firm Moneyfacts.
Before the credit crunch crippled lenders' ability to borrow money, there were more than 15,500 deals on the market.
Of yesterday's casualties, the biggest changes were Woolwich, which increased the rates on its lifetime tracker mortgage for the second time in a week.
For people with only a small deposit of 5 per cent, it will now charge a rate of 7.24 per cent.
In a highly unusual move, Skipton introduced a £799 fee for anybody taking out a mortgage with the building society on standard variable rate. Traditionally, "SVR" mortgages have been free because they are much more expensive than the cheap, short-term deals.
It is the second building society in a week to introduce a fee, after a similar move by Hinckley & Rugby on Tuesday.
The Bank's credit conditions-survey also said lenders expect the number of people getting into arrears, or seeing their homes repossessed, to rise further.
Tory spokesman Philip Hammond, said: "Reading between the lines, the Bank of England is telling us that 'we ain't seen nothing yet'.
"Hard-pressed British families are going to pay the price of Gordon Brown's economic incompetence as the credit squeeze bites further on an ill-prepared nation."
LibDem spokesman Vince Cable said: "We are in the nightmare scenario where banks can't lend and people can't borrow.
"The UK economy has been running on little else than the wide availability of cheap credit for several years.
"With lending now drying up, there is a real danger this will have a serious impact on growth in the economy."
Charcol's Mr Boulger added: "There is no doubt that things are getting more difficult, and they are going to get more difficult before they get better."
He said the only thing that was likely to improve the situation was either a return of confidence among investors, or the Bank of England putting more money into the market.
Is your area sub-prime?
This is the "sub-prime" map of Britain, showing for the first time the risk of a debt crisis in each area.
It was produced after an extensive study by the credit rating agency Experian.
The survey, published in this week's Spectator magazine, looked at the financial risk of every single household in Britain.
This is a measure of their likelihood of defaulting on their debts, particularly during an economic downturn.
Sub-prime borrowers are not the poorest in society, who typically get benefits and would use a loan shark to borrow money.
They are most likely to be people who had a county court judgment against them several years ago, but are now back on track and in a job.
The black spot on their credit history, however, makes them a sub-prime, higher-risk borrower, unable to get cheap loans and so more vulnerable to finding their finances stretched to breaking point.
Experian listed the number of sub-prime households by Parliamentary constituency. Of the 200 worst-affected seats, all but 14 are held by Labour.
The biggest risk was in former Home Secretary David Blunkett's constituency of Brightside, Sheffield. Some 72.2 per cent of all households in the area, almost 23,000 homes, matched Experian's sub-prime profile.
It does not mean they actually have sub-prime borrowings, such as mortgages and loans, but that they are the most likely to.
Middle classes feel the squeeze
Middle-class families are having to take second jobs to pay soaring household bills, a report says today.
Despite earning at least £30,000 a year, they cannot keep up with increases on "basics" such as food, petrol, mortgages and energy.
More than 70 per cent are also slashing their spending, proving that families who are meant to be relatively well-off are feeling the opposite.
Cutbacks range from eating out less often to reducing pension contributions.
The survey, by the insurance giant Axa, found that 15 per cent of middle-class families are having to get a second job or send a non-working member of the household out to work.
Researchers said this typically involves a stay-at-home mother having to get a job rather than looking after the children.
Official figures show the number of women with a second job has jumped 13 per cent over the last two years, from 583,000 to 655,000. More than 1.1million men now have two jobs.
Steve Folkard of Axa said: "A typical family in Middle Britain may have a higher than average income, but millions face tough choices as the strain on their finances takes its toll."