RICS warns of 40% fall in house sales

House sales volumes will fall by at least 40% this year if the credit crunch continues, the RICS has warned.

Despite predicting a massive slump in sales, driven by the squeeze on mortgage lending, the surveyors’ body insists that the market is not about to see a repeat of the early 90s property crash.

The latest housing forecast from the RICS warns of a 5% fall in house prices this year, compared with the level prices predicted for 2008 last September. A further fall of 2% is expected in 2009 before prices begin to recover.

But while an increase in “distress sales” by homeowners forced to sell because of mortgage repayment difficulties is likely, they will not become common as in the 1990s downturn, said the report.

With new sale instructions in decline, there is no expectation of a coming wave of forced sales. A more cautious approach to lending in recent years, compared with the reckless lending of the late 80s, meant that fewer homeowners are now at risk, the RICS said.

Between 2005 and 2007 the average loan-to-value ratio was around 85%, compared with 90% in 1985 to 1989. The proportion of first-time buyer mortgages made on a repayment basis was 71% for the three years to 2007, against just 17% in the three years to 1989.

However, the RICS warned that the fall in transaction volumes could have wider economic impact, beyond the property and construction sectors. A halving in sales volumes could reduce spending on consumer durables by more than 8%.