Property professionals are divided over the Bank of England's assertion that British house prices have reached unsustainable levels. Governor of the Bank of England Mervyn King recently said the ratio of house prices to earnings was above levels most people considered sustainable. 'There are some early signs, from surveys, of a slowdown in the housing market. After the hectic pace of price rises over the past year, it is clear that the chances of falls in house prices are greater than they were,' he said. According to the National Association of Estate Agents, prices increased last month, up 2.25 per cent on April. They are 12.55 per cent higher than this time last year. But Hamptons International sales director David Adams said prices in central and southern England had started to fall because they had risen too fast earlier this year. 'The 8.2 per cent rise in prices between January 1 and May 30 was too much for a four-month period. Therefore, there will be a 3 per cent fall in June and July. This is happening now. In September, October and possibly November, prices may go up 1 or 2 per cent if supply is down, or stay level if there is no shortage,' Mr Adams said. Jonathan Loynes, British economist at consultancy Capital Economics, said house prices were moving ahead of earnings too quickly. 'Mr King's comments have served to highlight the danger that, when the housing slowdown comes, it will be more abrupt than the soft landing still built into most forecasters' predictions,' Mr Loynes said. 'We expect house prices to begin to fall around the end of this year, with house price inflation slowing to minus 7 per cent by the end of 2005.' Robert Hadfield, analyst at landlord website residentialinvestoralert.com, said: 'Mervyn King deserves two cheers for this warning. People who have seen bricks and mortar as a safe haven are likely to become disillusioned as soon as the reality of falling property values is more widely apparent.' The Royal Institution of Chartered Surveyors (Rics) is less bullish than usual. Rics economist Milan Khatri said: 'If interest rates continue to rise fairly rapidly this year - say beyond 5 per cent by year-end, it cannot be ruled out that a temporary price fall will occur. 'However, without underlying economic conditions also showing a marked deterioration, a period of prolonged price falls is still quite unlikely. The likely scenario is that prices stagnate rather than continuously drop back.' Knight Frank head of residential research Liam Bailey said Mr King was talking the market down to avoid raising interest rates which might damage other parts of the economy. 'There is no doubt that house price inflation has slowed in many parts of Britain over the past 12 months. Growth in the south has been slow at between 4 and 8 per cent compared with the north and the Midlands at 20 per cent.'
