Oct. 07 (Bloomberg) — U.K. house prices plunged in September by the most since at least 1983, adding to evidence that the housing market faces a renewed slump as the government readies the biggest spending cuts since World War II.
The average cost of a home fell 3.6 percent from August to 162,096 pounds ($258,000), Halifax said in an e-mailed statement today. That’s the biggest drop since the mortgage lending division of Lloyds Banking Group Plc began its housing gauge in 1983. Property values were 0.7 percent lower than the same month a year earlier.
“I think housing is already in a double dip,” Alan Clarke, an economist at BNP Paribas in London, said in a telephone interview. “We’re probably looking at house prices being down 5 percent year-on-year by the middle of 2011. It’s going to be very hard for the U.K. recovery to continue on an upward sloping trajectory.”
The International Monetary Fund said yesterday that U.K. house values remain “high” and may fall further as policy measures might not be sufficient to support the property market. The Bank of England today held its main interest rate at a record low of 0.5 percent and left its bond-purchase target at 200 billion pounds.
The pound, which fell after the report, was trading 0.7 percent higher against the dollar at $1.6004 as of 12:50 p.m. today in London. Against the euro, sterling gained 0.3 percent to 87.43 pence per euro.
The average price in the three months through September was 0.9 percent lower than the previous quarter, the biggest quarterly drop since June 2009, Halifax said.
“An increase in the number of properties available for sale” and “renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase,” Martin Ellis, an economist at Halifax, said in the statement. “Prospects for the housing market remain uncertain.”
Prime Minister David Cameron said this week that Britain needs to “face up to our financial responsibilities” by curbing its record budget deficit. Details of the expenditure squeeze are due on Oct. 20.
“Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market,” Ellis said. “These will all be constraints on the market, dampening house prices.”
Declining house values will add to pressure on consumers and slow the economic recovery, BNP’s Clarke said.
“The consumer was always going to be facing a slow year ahead because disposable income growth was going to slow, but now they’re facing a double whammy of low disposable-income growth and falling house prices,” the economist said.
Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said today it is “cautious” on its outlook for sales and that “trading conditions are likely to become more challenging.”
By Svenja O’Donnell – Oct 7, 2010 2:02 PM GMT+0200