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'House prices to fall a quarter'

• Robert Peston
• 8 Sep 08, 04:45 PM

is one of the Big Three providers of mortgages and closer to the housing market than most financial institutions.

As by far the UK's biggest building society, over the course of the cycle it provides slightly fewer than one in 10 of all the mortgages in the UK - though its recent share of new homeloans has been a bit less.

So Nationwide's chief executive, , carries weight when prognosticating.

What he has told me in an interview today is that he doesn't expect the housing market to show signs of recovery till 2010 (click for an excerpt).

And he also forecasts the peak-to-trough fall in prices will reach 25%.

That's a very significant drop.

It would mean that a typical house would have decreased in value by a quarter during the two-and-a-bit years from last autumn to some time in the next decade

If Beale's right, some 2.5 million homeowners would for a period suffer from negative equity (according to research by Michael Saunders of Citigroup).

That would mean 22% of all householders with mortgages would have homeloans greater than the value of their respective homes.

Beale believes that there's little the government or anyone can do to stem in any significant way what he believes is a necessary adjustment of prices.

For him, the US Treasury's colossal scheme to shore up the two great providers of housing finance, Fannie Mae and Freddie Mac, should help to restore confidence in financial markets, but can't swiftly revitalise our housing market - even though our prospects are inextricably linked to prospects for the US residential property market, because of its importance for the funding of the global financial system.

That said, our government is under pressure from banks and building societies to help them raise money so that they can lend a little more to us in the form of mortgages.

The two options being considered at the Treasury are to provide a taxpayer guarantee for mortgages packaged up as bonds for sale to investors, or to extend an existing Bank-of-England liquidity scheme so that it could help banks to refinance new mortgages.

Both options would be designed to increase the confidence of global investors that money they provide to banks for lending in the form of mortgages would be safe.

And both options are loathed by the Governor of the Bank of England, Mervyn King, because he believes they could distort the housing market.

Which creates the tantalising prospect of a serious showdown between the Bank of England on the one hand and the Treasury and 10 Downing Street on the other over the best way to revive our housing market, our banking system and our economy.

Not much at stake, then.

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