Halifax: House price falls accelerating

Thursday, 5 June 2008 3:10 PM

New research from the Halifax finds average house prices in the UK slipped 2.4 per cent during May.

This follows drops of 1.3 per cent in April and 2.5 per cent in March - which was the largest drop recorded since 1992.

As a result of the sustained monthly falls, annual house price inflation remained in the red, with year-on-year declines now totalling 3.8 per cent.

The results closely mirror the findings of the Nationwide house price index, which finds house prices fell by 2.5 per cent in May - the fastest fall in 17 years.

However, Halifax is again urging homeowners to place the fall is perspective.

Average prices in the UK have increased by 79 per cent over the five years to August 2007, with £88,000 added to the value of a typical property.

Furthermore, the market continues to be supported by strong fundamentals; with high employment levels, low interest rates and a shortage of new homes all recorded.

Employment increased by 117,000 in the three months to March compared with the preceding quarter and stands at a record high 29.54 million.

"The decline in prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability," said Martin Ellis, Halifax chief economist.

However, there are other worrying signs the market could be entering a period of severe correction.

The number of new buyers interested in home purchase fell for the 17th successive month in April, with the decline occurring at the fastest pace since this data was first collected in April 1999, according to the Royal Institution of Chartered Surveyors (Rics).

Moreover, the number of mortgages approved to finance house purchase - a good leading indicator of house sales - in April 2008 was also 49 per cent lower than in April 2007 at 58,000, according to the Bank of England.

"The latest data on the housing market are undeniably alarming. Clearly, the downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is now biting hard," said analyst Howard Archer, with Global Insight.

"Elevated affordability pressures on potential house buyers stem from high house prices and modest real disposable income growth, while ongoing tight credit conditions are leading to significantly fewer and more expensive mortgages being available."

Global Insight now predicts house prices will fall by 12 per cent in both 2008 and 2009 - revising its forecasts down from a previously we had expected drops of seven per cent in 2008 and nine per cent in 2009.

This, however, is well ahead of the Council of Mortgage Lenders (CML) expectation, of a seven per cent fall by the end of the year.

Chris O'Toole

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• uk property news