House prices suffer biggest fall since records began

House prices: Dropped by more than £25,000 over the past year. Photo: Cate Gillon/Getty

House prices fell by 1.8% in August, bringing the average price of a property in the UK below the government’s new stamp duty threshold, figures showed today.

The UK’s largest lender, Halifax, said the average price of a property had fallen by 12.7% since last August – the biggest fall since it began publishing a monthly survey in the early 1980s.

Prices have dropped by more than £25,000 since August 2007 when the average cost of a home was £199,612, and by more than £3,000 since July.

The average house price now stands at £174,178.

This is below the new £175,000 stamp duty threshold introduced by the government on Tuesday as a temporary measure designed to stimulate the housing market.

The annual price fall quoted by Halifax is 10.9% – lower than the fall shown by comparing the average prices in August this year and the same month last year.

This is because the lender calculates the annual change on the basis of three months’ figures, which it says gives a fairer representation of what is happening in the market.

This is the first time that figure has been in double-digits since the survey began in 1983.

Last week, rival lender Nationwide also reported a first double-digit fall in prices, saying values were down 10.5% year-on-year.

The 1.8% fall in August reported by Halifax followed a 1.7% drop in July and was the sixth consecutive monthly fall of more than 1.5%.

Martin Ellis, Halifax’s chief economist, said market conditions looked set to remain “challenging”.

He said: “The pressure on householders’ income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.”

But he said the market continued to be supported by high employment levels, low interest rates and a shortage of new houses.

He added: “This week’s announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south-east.”

Decline as a deterrent

House prices have been falling since last autumn when the credit crunch started to reduce the availability of mortgages, making it harder for first-time buyers to raise funds to buy a property.

The sharp downturn in prices – and predictions of further falls to come – has also deterred would-be buyers.

Figures published by the Bank of England on Monday showed the number of mortgage approvals for house purchases fell to a record low in July, and surveyors and estate agents have reported low levels of buyer interest over the summer.

Although the stamp duty change has been welcomed by lenders and buyers, many experts say the continued lack of mortgages will continue to dampen demand.

“Major downward pressure on house prices continues to come from extremely weak market activity, stretched buyer affordability, and tight lending conditions,” said Howard Archer, chief UK economist at Global Insight.

Archer added that rising unemployment could also lead to an increase in the number of homeowners putting their properties on the market for “distressed” reasons, which would further depress prices.

“Given these very poor fundamentals for the housing market, it is unlikely that the recently announced government measures to support the housing market will have a significant impact in stabilising activity or prices,” he said.

Mortgage cuts

Although an interest rate cut might encourage buyers into the market, Archer said the high level of inflation in the UK meant the Bank of England was likely to hold rates when it made its decision today.

There has been some good news for borrowers in recent weeks, however, as mortgage rates have started to edge down.

According to Moneyfacts, the average cost of a two-year mortgage has returned to its pre-credit crunch level – dropping to 6.39% from a peak of 7.08% in early July.

And today, Abbey announced it was cutting rates on its two-, three- and five-year fixed-rate loans by up to 0.3%.

First-time buyers have also been given a glimmer of hope, with Skipton building society announcing it would be renewing offering 95% mortgages from September 15.

However, the deal is only available to borrowers who save with the society or who have family members who do.

Hilary Osborne
Thursday September 04 2008 09:21 BST

Source: The Guardian

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