In the short term there are many factors which are dragging down house prices.

• Lack of Mortgage Lending. This is probably the biggest constraint on housing prices at the moment. The freezing up of credit markets mean that banks have become reluctant to lend. They are requiring lenders to have large deposits; many homeowners with good credit records are getting refused because of the mortgage crisis.
• Higher Bank Rates. The bank of England has cut base rates, but, the problem is that the commercial banks have not been passing these onto consumers. This is because the interbank lending rate (Libor 3 month) has increased. Therefore, consumers on the high street are still facing higher rates, despite the base rate cuts.
• Bank of England Rescue Package. The Bank of England has announced £50 billion to ease liquidity in the money markets. This enables the banks to exchange mortgage backed securities for government securities; this should enable the banks shortgage of funds to ease and may improve the flow of mortgages.

Some lenders forecast house prices could fall 30% within the next two years, as house price return to a long run trend of house prices to incomes.

However, in the long run, forecasts for the Housing market are more mixed. Some feel that the house prices falls will prove temporary, and in the long run, there is scope for big increases in house prices.

• Long Run Forecasts for Housing Market