The Tradition Future HPI The Year Ahead The

The Tradition “Future HPI” The Year Ahead The leading index of future UK house prices Average UK House Price Expected to Fall 24% from £ 162, 848 to £ 123, 764 in 2009 The HBOS Non-Seasonally Adjusted HPI fell £ 31, 410 (16%) during 2008 from £ 194, 258 to £ 162, 848. During 2008 the one-year Tradition Future HPI — an estimate of future average UK house prices drawn from the derivative market — fell £ 60, 206 (33%) from £ 183, 970 to £ 123, 764. The indices further predict that the average UK house price will fall to £ 109, 108 by 2011— a return to the house prices of Spring 2002. According to the indices, prices will begin to repair in four years and return to current levels five to six years thereafter. Tradition Future HPI For 2008 End-07 End-08 Change HPI NSA £ 194, 258 £ 162, 848 -£ 31, 410 1 Year £ 183, 970 £ 123, 764 -£ 60, 206 3 Year £ 183, 970 £ 109, 108 -£ 74, 862 5 year £ 185, 948 £ 119, 693 -£ 66, 255 *In association with Strutt & Parker Real Estate Financial Services Note: Figures refer to the estimated future value of the average house price in the UK according to the derivatives market Commenting, Peter Sceats, Director, real estate division at Tradition, said: “ It is no surprise that the expectations for future house price falls are running ahead of the physical housing market at this time. Despite monthly mortgage payments becoming more affordable and the recent reduction in stamp duty, sentiment in the City for house prices remains undeniably bearish. Loan to Value rates (LTVs) have fallen from 85%/125% at their peak to around 60%/85% and as a consequence insufficient numbers of first time or re-entry buyers are coming through to breathe life into the crucial lower end of the UK housing market. Until house prices stabilise, banks are unlikely to increase LTV rates - but house prices will not begin to stabilise until buyers step back into the market. We have a true “Catch 22” situation which, our indices suggest, will manifest itself with average UK house prices falling around 24% from £ 162, 848 to £ 123, 764 in the coming year. Released 24 th December 2008 Page 1 of 2 Copyright 2008, Tradition Financial Services Ltd. ” Global Leaders in Interdealer Broking www. tradition. com

On residential property derivatives The Financial Times wrote: ” House price derivatives markets are not perfect guides to the real thing. They are often illiquid and dominated by mortgage banks seeking to hedge an element of their housing exposure. But, so far, they have been a better predictive record than most economists. ” The above chart compares the HBOS HPI (NSA) with the one year forward Tradition Future HPI. Note how derivative based prices are more volatile than the house price index on which they are based. Note also how house price expectations ran at a premium to real house prices (as reflected by the HBOS HPI) during the up-cycle until September 2007 and since then have run at a discount. Whether derivative prices, as portrayed by the Tradition Future HPIs, are already a confident leading indicator or merely a noisy errant cousin of the real house price yet to be backed by significant volume, these indices are becoming increasingly difficult to ignore. Notes to Editors The Tradition Future HPI is published every month by the Property Derivatives Team at Tradition Financial Services Limited (“Tradition”) , a global leader in interdealer broking. The index provides an estimate of the future price of an average UK house. It uses derivative prices quoted in the over-the-counter (OTC) residential property market with HBOS PLC's Halifax House Price Index as its basis. The Tradition Future HPIs are not a guarantee of future property returns; rather they illustrate dynamic forward prices which are subject to change. The indices are an economic reference tool representing the changing forward value of UK housing. The OTC market in UK house price derivatives is accessible to suitably authorised banks, institutions, and individuals via Tradition. For more information on house price derivatives, please call Tradition on +44 (0) 207 796 1510 or e-mail property@tradition. com. Tradition is authorised and regulated by the UK FSA. HBOS PLC Disclaimer HBOS PLC have no liability to Tradition or its customers and are not under any obligation to continue to publish HPI data. The data is prepared from information that HBOS PLC believe is collated with care, but the company makes no statement as to its accuracy or completeness. HBOS PLC reserve the right to vary methodology and to edit or discontinue the indices at any time for regulatory or other reasons. Persons seeking to place reliance on the indices for their own or third party commercial purposes do so at their own risk. Tradition Disclaimer & Trademark Information The information is not provided as the basis of any professional advice or for transactional use. Tradition makes no warranties or representations about the information contained in this pamphlet whether in relation to its accuracy, completeness or otherwise and shall not be liable to anyone for any claims or losses of any nature howsoever arising out of its use. Should you require information for specific investment purposes, please contact us. Tradition Future HPI is a trademark of Tradition and Tradition is a registered trademark of Compagnie Financière Tradition. Released 24 th. December 2008 Page 2 of 2 Copyright 2008, Tradition Financial Services Ltd. Global Leaders in Interdealer Broking www. tradition. com