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Sam Fleming and Becky Barrow, Daily Mail

House prices are 30% too high in the UK and could soon collapse, the International Monetary Fund said yesterday.

After a decade-long housing boom, it fears Britain is one of the most vulnerable countries in the world to a devastating price collapse.

In a further blow, the Bank of England warned that the mortgage meltdown is going to get even worse. The number of mortgage deals has collapsed by 70% since last summer’s credit crunch.

It added that mortgage availability is set to worsen with 43% of lenders planning to cut back over the next three months.

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’, 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% 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. Lenders said more mortgage deals will disappear and the rest become harder to get because of increased rates, larger deposits or tighter checks. 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 casualtiesthe 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%, it will now charge a rate of 7.24%.

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.

Homeowners have gone on a borrowing binge as cheap remortgaging deals dry up. Credit card debt went up by £350m and bank loans and overdrafts soared by £2bn in February.

It was the highest monthly increase since records began in 1987, according to today’s Bank of England figures.

City economists said the ‘bizarre’ jump in consumer borrowing was caused by the remortgage ‘tap’ being turned off by lenders because of the global financial crisis. Tracey North of uSwitch.com said: ‘People are grabbing what credit they can.’

Today several banks followed First Direct in scrapping their cheapest deals. The Co-op Bank also said it would temporarily withdraw its two-year mortgage range from Thursday’s close of business after being hit by ‘unprecedented levels of customer interest and demand’ as rivals withdrew their products.

The figures show banks and building societies have drastically reined in their lending with mortgage approvals down 40% in a year to 74,000 in February. It is the second lowest level since the Nineties housing crash. The level of mortgage equity withdrawal has also shrunk.

Instead of being able to spend the equity in their homes, hard-pressed families are having to seek more expensive forms of credit.

The fear is that once borrowers have exhausted all sources of credit, many will be forced into insolvency or have to give up their homes. A similar pattern was seen last year in America as the subprime credit crunch took hold.

Another factor is that an estimated 1.4m borrowers face big increases in their mortgage costs this year when they come off fixed deals taken out two or three years ago. On a typical London mortgage of around £200,000, the increase could be £150 a month.

Howard Archer, chief UK economist at City forecasters Global Insight, said: ‘February’s jump in consumer borrowing is very surprising, and could be a consequence of people looking to borrow while they can amid fears that tightening credit conditions will make this increasingly difficult over the coming months.’

It follows a period when consumers have been paying off expensive bank loan and credit card debt, often with money borrowed against their homes. Commentators also said the debt helped explain the stronger than expected high street spending figures in recent months.

Richard Snook, economist at the CEBR think-tank, said: ‘Consumers are very, very happy to expand their spending in the good times but less willing to rein it in in the bad times. They are very resistant to tightening their belts.’

The statistics come the day after First Direct said it was halting all mortgage approvals to new borrowers because it was overwhelmed by the number of applications.

It follows the first official confirmation of a downturn in the London property market with prices dropping 0.4% in the capital.

Liberal Democrat shadow chancellor, Vince Cable said: ‘It is becoming clear that the downturn in the housing market is much more than just a blip. As the credit crunch continues to restrict lending and with many people saddled with masses of personal debt, a dramatic fall in mortgage approvals was inevitable.

‘As house prices continue to fall and mortgage costs rise, we are in real danger of returning to the woes of the Tory recession with large numbers of families suffering negative equity and repossession.

‘The Government must act now to prevent mass repossessions which will only worsen this housing crash.’

Some borrowers will also not reap the benefits of official interest rate cuts expected next week, analysts warned. NatWest and its parent company Royal Bank of Scotland, along with Kent Reliance Building Society, today became the first lending institutions to raise mortgage rates for existing customers.

The latest evidence of the meltdown in the mortgage market came as the European Union said it will launch a full investigation of the state rescue of Northern Rock.

Evening Standard and This is Money

Annual house price growth fell for the sixth month in a row during February to its lowest level since 2006, figures showed today.

The average cost of a home in England and Wales rose by just 5.3% during the 12 months to the end of February, the slowest rate of gain since July 2006, according to the Land Registry.

At the same time monthly house price growth stalled, with the average value of a property remaining unchanged at £185,616.

The overall figure masked more gloomy regional variations, with house prices falling in seven out of 10 regions during the month.

Wales saw the biggest price falls, with the average cost of a home dropping by 1.1% during the month to average £140,031.

The market was also weak in the South East and London, where prices fell by 0.7% and 0.4% respectively.

The North East and North West saw price falls of 0.3%, while the average cost of a home in the East and South West fell by 0.2%.

The West Midlands saw the strongest price growth during February, with house prices in the region rising by 1.3%.

Yorkshire and the Humber and the East Midlands were the only other regions to see price gains, with rises of 0.5% and 0.1% respectively.

On an annual basis, London continued to be the only region with double- digit growth, although the rate fell from 13.1% to 10.6%.

Across other regions the South East had the next strongest rate of annual house price inflation of 6%, while growth was slowest in the North East, where the average cost of a home inched ahead by just 1.9% during the year.

The number of homes changing hands continued to fall, with an average of 90,880 properties sold each month between September and December, 13% less than during the same period of 2007 as the market continued to slow.

At the same time there was a 30% drop in the number of homes sold for more than £1 million in December compared with a year earlier, with only 381 homes changing hands for sums of at least seven figures.

Today’s figures add to the current raft of gloomy data on the housing market, with Nationwide Building Society last week saying house prices fell for the fifth month in a row in March, dropping by 0.6%, while annual house price growth eased to just 1.1%, its slowest rate for 12 years.

Property information group Hometrack yesterday said house prices in England and Wales had increased by just 0.4% during the past year, after falling by 0.2% in March.

This Is Money

Council house tenants in Merthyr Tydfil have voted to transfer their homes to a not-for-profit housing association, Community Housing Cymru said.

£69.5m will be spent improving homes in the area over the next five years, the housing association body said.

The result was 1,199 in favour of transferring to Merthyr Valleys Homes with 1,185 against.

Turnout for the vote was 57%, with 2,390 votes cast by post, phone, text and on the internet.

Article form the BBC.