House prices peaked in October 2007 along with the stock market. A £200,000 property then has fallen in value to about £168,000 now. My view is that the market will hit bottom by mid 2010 when that same house will be worth £120,000 - a drop of 40% from its peak. I do not see a return to house price inflation beyond 2014.
MORTGAGES
In 2003 I said that “The cheapest mortgages will be lifetime trackers. But once it is clear that interest rates are likely to fall significantly, lenders will make them less attractive or withdraw them completely”.
This prediction has come true as there are now only a few lenders offering Lifetime Trackers - albeit on terms which are much less favourable than I was getting for my clients only 2 years ago. Clients for whom I arranged mortgages/ remortgages since 2005 are paying around 2% interest or less now and I expect this to fall to about 0.5% by the summer of 2009! As the base rate is likely to go to zero, Lifetime Trackers are still probably the most suitable type of mortgage for those people who can come up with the large deposits and fees that lenders are now demanding.
BANKS / INSURERS / INVESTMENT MANAGEMENT COMPANIES
Since the credit crunch started the banking sector has been decimated and a country, Iceland, has gone bust. UK taxpayers have bailed out the weakest banks which surprisingly included the Halifax – the biggest deposit taker and mortgage lender.
In 2003 I said that: “only the strongest banks and insurance companies would survive and that several small building societies would fail” and, as far as the banking sector is concerned, that has happened, though I think that more banks will fail. Several small building societies were recently taken over by the Nationwide as they were so financially weakened by the economic crisis that they could not continue to trade in their own right.
In 2008, AIG, was the first major insurer (the world’s largest) to fall victim to the crisis - needing $78 billion from US taxpayers to keep it afloat.
No UK insurers have failed yet, though many are in terminal decline. Those who have taken over the liabilities of company pension schemes and/or are big providers of annuities are at most risk of insolvency if investment markets collapse. I have no confidence in the ability of the Pension Protection Fund to adequately recompense those who could find that they will no longer receive their retirement pensions if the insurer responsible for paying them goes bust. There just isn’t sufficient funding in the scheme to deal with a large number of claims - unless the government steps in.
In 2009 I expect to see most British household name insurers going down. And I do not think the government will prop them up. As a result of the shortage of insurance underwriting capacity I expect to see general insurance premiums rise substantially.
In 2008 we saw the collapse of many multi - billion pound ‘Hedge Funds’ and three of world’s largest investment banks. This year I expect to see more of the same and the demise of the majority of investment fund management companies in the City of London and elsewhere. These firms manage Stocks & Shares ISAs, Unit Trusts, OIECS, Investment Trusts and Pension Funds.
In short, I expect to see all the remaining ‘towers of Babel’ that make up the financial system fall.
CRIME
In 2003 I said: “There will be a big increase in crime - especially crimes like muggings and burglaries. There will be a resurgence of interest in people growing their own food in order to save money”.
There have been stories of an increasing number of thefts of food from allotments and I would expect the number of ‘hardship’ crimes to soar.
THE STOCKMARKET
I see the FOOTSIE 100 index of leading UK Companies falling by 60-65% to 1650 by the middle of 2010, at the latest, and staying at around that level for many years to come. I do not think it will recover.
I predicted this in December 2003 - although I thought then - that this low point would be reached by June 2008. My other prediction - that the FTSE 100 would not exceed 6750 - was spot on, as it actually peaked at 6732 in October 2007.
Stock markets will become increasingly volatile. Daily swings of 10% or more in the FOOTSE 100 and other share price indices will become common place as markets are driven more and more by an emotional sea of greed, anger and fear.
I do not see a future for speculative investing, as, following falls of the magnitude I envisage, I believe that stock markets will eventually die out through lack of investor support. This is already happening as the number of private investors in the stock market is at an all time low.
I do, however, see a glowing future for companies that are wholly owned by their employees, like the John Lewis Partnership and organisations whose commercial activities are of benefit to all life.
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