According to US investment bank Citigroup, house prices could fall by as much as 15 per cent by the end of the year, causing thousands of people to fall into negative equity – where a person’s mortgage is more than the value of their house.

Michael Saunders, Citigroup’s UK economist, warned of signs that the UK’s economy is slowing sharply, adding that, as inflation stands at 3 per cent and is set to rise, the Bank of England is unlikely to cut rates this Thursday.

Nationwide’s house price index showed that house prices fell by 2.5 per cent just last month and, as mortgage criteria’s tighten pushing potential buyers out of the market price drop predictions are rapidly increasing, up to Citigroup’s predicted annual drop of 15 per cent.

The news strengthens Liberal Democrat Treasury spokesperson Vince Cable’s April predictions that three million households could fall into negative equity over the next twelve months.

Commenting on Nationwide’s house price figures, Mr Cable said: “This freefall in house prices is becoming worryingly reminiscent of the Tory recession of the 1990’s.”

He added: “The reality is that the housing market has been seriously overvalued for some time thanks to massive consumer debt. And with falling house prices and high mortgage costs there is a real danger that many people could find themselves in negative equity and under serious threat of repossession.”

According to Moneyfacts.co.uk, 1.4 million Brits are due to remortgage this year and the interest rate on the average two year fixed rate mortgage is set to rise above seven per cent, squeezing borrowers’ already tight budgets and putting them in real financial danger.

Mortgage expert Darren Cook at Moneyfacts.co.uk, said: “Many of these borrowers would have stretched their budget in order to afford the original deal and are likely to struggle with such an increase, particularly with other household debts increasing at the same time.”

He added, “These borrowers are in for worrying times. However, lenders should understand the difficulties people are finding themselves in and allowing the case to get to a repossession stage is not in anyone’s interest.

“People who might find themselves in a worrying situation like this should first contact their current lender and explain their circumstances before the situation becomes irreversible.” Mr Cook advised.

©Fair Investment Company Ltd