House prices falling at fastest rate for 16 years

Hilary Osborne
guardian.co.uk,
Tuesday July 1, 2008
http://www.guardian.co.uk/money/2008/jul/01/houseprices.property

House prices in the UK fell by 0.9% in June, Nationwide building society said today, and are dropping at their fastest rate in 16 years.

The average price of a home in the UK has fallen by 6.3%, or £11,500, since last June, and by 7.5%, or £13,629, since reaching a peak last October, according to the figures. It now stands at £172,415.

The year-on-year fall is the biggest recorded by the society since December 1992.

Although the pace of decline slowed last month after May's 2.5% fall in prices, this is the eighth month running they have fallen, and a continued slowdown in the mortgage market suggests there are further falls to come.

Yesterday, the Bank of England said the number of mortgages approved for house purchases had fallen by 64% over the year to May to reach a record low of just 42,000.

Recent figures from the government showed the number of sales was down 37% compared with the figure for May 2007, while the latest Land Registry figures on house sales showed that they were running at half last year's level.

Nationwide's chief economist, Fionnuala Earley, said: "With house purchase transactions so far below their long-term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months.

"However, as prices continue to fall affordability measures become more favourable for those in a well-financed position to be able to buy."

Regional figures from the society showed prices were down year-on-year in 12 out of 13 areas of the UK in the second quarter of the year, and had fallen in all areas since the first three months of the year.

It said Scotland had proved most resilient to the market downturn so far, with prices falling 1.8% over the quarter but up 0.6% on the same period last year.

Earley said the reason that this correction in prices was "less drastic" than elsewhere was that housing affordability had remained better in Scotland than in many other regions of the UK.

Northern Ireland saw the biggest fall in prices over the quarter, with the average cost of a home falling by 9% between April and June.

However, despite falling 18% over the past year prices in the region are still above the UK average at £183,476.

The city which saw the biggest decline in prices over the quarter was Sheffield, where 17% was knocked off the value of a home between April and June.

Prices have been falling steeply since the end of last year as a lack of mortgages, affordability problems and concerns about the market have deterred potential buyers.

Howard Archer, chief UK economist at Global Insight, said the data did "little to dilute concerns that we are headed for a sharp correction in house prices".

"The marked deterioration in sentiment over the housing market also heightens the risk that house prices will fall sharply over the next couple of years," he warned.

"On top of this, unemployment is now starting to rise, which along with a substantial number of homeowners having to remortgage at higher rates, is increasing the likelihood that people will have to sell their house for 'distressed' reasons."