Halifax: House prices down 2.5% in March

The correction in UK house prices appears to be gathering pace, with the latest Halifax house price survey finding prices dropped by 2.5 per cent in March.

This follows a 0.4 per cent fall in February and adds weight to fears the market is now under severe strain.

It is also the largest monthly fall since 1992.

Annual growth has now slowed to 1.1 per cent, the lowest level for 12-years, while in the quarter to March prices dropped one per cent.

Halifax now finds the average price for a property in the UK is some £191,556.

However, despite the general gloom, across the country there was a mixed picture.

The biggest price rises in the last quarter were in Greater London (1.6 per cent), East Anglia (1.4 per cent) and the East Midlands (2.2 per cent).

There were also gains in the north (1.2 per cent) and Scotland (0.2 per cent).

Prices in the south-east were unchanged.

Scotland, 5.3 per cent, and Northern Ireland, 3.5 per cent, have also seen above average growth over the last year.

However, Halifax explains the drop in prices should be taken in context.

Prices have increased by around 171 per cent in the previous decade, from an average of £70,696 to £191,556.

A strong market is also supporting prices.

"Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations," explained Halifax chief economist, Martin Ellis.

"Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall."

The slowdown in the market is forcing lenders to curtail their product range, making borrowing difficult. As a result homebuyers are being forced to pay a higher level of deposits for their property.

Halifax finds 82 per cent of all new borrowers put down a deposit of more than ten per cent of the house price during the final quarter of 2007, whereas by contrast 56 per cent of new borrowers put down a deposit of more than ten per cent in 1989 and 1990.

Furthermore, the average deposit put down by a first-time buyer in 2007 (£34,381) represented 20 per cent of the purchaser price, compared with 12 per cent in 1989.

The new research has prompted analysts to lower their expectations for the coming year.

As Howard Archer, economist with Global Insight, explains: "Global Insight now expects house prices to fall by seven per cent in 2008 and eight per cent in 2009.

"We had previously forecast prices to fall by five per cent in both years, but the recent escalation of the credit crunch means that there is a markedly increased danger that a sharp housing market correction could occur."

The credit crunch has been taking a toll on the UK market explains the Royal Institution of Chartered Surveyors (Rics).

"The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity in the market," said Rics chief economist, Simon Rubinsohn.

"Loan to value (LTV) ratios are being lowered at the same point as borrowing rates are being raised putting increasing pressure on first-time buyers who are having to find ever larger deposits."

Rics now warns year-on-year house price inflation could turn negative in the next quarter, and calls upon the Bank of England to redress the situation with a cut in interest rates.