HOWZAT

Yesterday, the Bank of England's Monetary Policy Committee failed to provide relief to homeowners looking to cut their mortgage costs by keeping the interest rate at 5 per cent.

Moody's Investors Service, the credit rating agency, also reported that mortgage arrears and repossessions had jumped sharply in the second quarter, even among the highest-rated borrowers.

Savills underlined the gloomy picture with new evidence that London's well-paid financial services community has taken a battering during the credit crunch.

The estate agent said demand for £1 million to £2 million homes had fallen by 54 per cent, compared with last year.

Prime central London property values fell by 5.5 per cent in the second quarter of 2008, according to Savills, while the prime and country house market fell by 4 per cent during the same period.

The estate agency group also pointed out that renting is currently cheaper than owning a house, deterring many potential buyers from entering the market.

By the time the property market reached its peak last year, the costs of ownership were 44 per cent higher than the costs of renting, according to Savills.

The company predicts the disparity will diminish during 2009. "By the end of 2009, the cost of buying should be in line with the cost of renting, so making ownership attractive again," Savills said.

Faced with continued evidence that the economy is heading for a technical recession, analysts have begun to adjust their forecasts for the plight of the nation's homeowners.

Last month, Standard & Poor's, another credit rating agency, said that one in six homeowners in the UK will fall into negative equity by the end of next year if house prices fall by a further 17 per cent.

Morgan Stanley estimated in April that house price falls of 15 per cent over the subsequent 24 months would put 1.2 million people into the red with their property values.

But if price falls of 25 per cent are sustained, that would put 2 million into negative equity, analysts at the investment bank said.

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