MPs told UK house price falls 'may be over'

A Bank of England policymaker and mortgage market expert told MPs today that he believed the worst of the UK house price falls were over.

Professor David Miles - author of a Government-commissioned report on the mortgage market in 2003 and 2004 - offered more hope for the embattled property sector after Nationwide yesterday revealed that prices rose in June for the third time in four months.

The new member of the interest rate-setting Monetary Policy Committee said in a Treasury Select Committee hearing on his appointment that the market may have reached the bottom.

"Expectations are crucial in the housing market and they look a bit better now than a few months ago," he said.

"My hunch - and I put it no stronger than that - is that we have seen most of the overall aggregate house price falls."

His Miles Review sent out an early warning that the focus in the mortgage market was not long term enough, cautioning that borrowers were fixated on short-term deals which left them exposed to interest rate payment shocks.

He reiterated to MPs today that he also said in 2005 and 2006 that house prices were over-valued by around 20% to 25%.

The former Morgan Stanley economist said the mortgage market had undergone a shift change since the credit crunch, although he said it had not been entirely unwelcome.

"High loan-to-value mortgage products have dried up - ultimately that is not a disaster; people will wait a bit longer to buy and rent a bit longer," he said.

He added: "The flow of first-time buyers will be reduced as they accumulate higher deposits.

"This means that the volume of house purchases on a transition to a new equilibrium, where people buy later and with higher deposits, will be reduced. That is part of what we have been going through over the past 18 months. But it is a transition."

Mr Miles also told the cross-party group of MPs that the UK's official measure of inflation was "flawed", as it did not include housing costs.

The Consumer Prices Index (CPI) is used as the target measure for the Government and the Bank as an economic tool but, unlike the Retail Prices Index (RPI), it does not include mortgage or housing costs.

Recent readings from the two measures have been growing further apart as the recession and property market woes have taken hold.

While CPI has remained above the 2% target, at 2.2% in May, RPI has already fallen into negative territory, marking the first period of deflation in almost 50 years.

Mr Miles said: "Housing costs need to be in a measure of consumer prices. It is not obvious what the right way to do that is. But I believe it is clear that a measure of inflation which does not allow the costs of housing to have any influence is flawed."