As if to rubber stamp what some people were already thinking, a report out today has forecast that house prices in the UK are set to fall by as much as 6% in 2008.  While the forecast fall in prices will probably vary wildly between different areas of the country, the trend seems to be down.  Is 6% a large fall? Will it cause panic?

As many people are already seeing a tightening of their fiscal belts, a fall in property prices might not be such a bad thing in the long run.  It will serve to take some of the froth out of the market, and possible shake-out the short term investors who can often cause havoc with supply and demand.  While the credit crunch seems to have been forgotten by many investors, there is no doubt that at best it will be a drag on the property market for the next few months, although a property crash does not seem to be imminent.

How will the Bank of England respond?

In truth there is probably very little that the Bank of England can do, indeed they may even be relieved to see a possible reduction of the froth from the property market.  Their long term aim is, and always has been, to control the rate of inflation in the UK and unlike many central banks around the world, they have never lost sight of this.

A soft landing for the property market is probably one of the better scenarios that could happen, but things can change so quickly in the finance industry and you never know what is around the corner.