10
Oct
Further decline in house prices
REPORT FROM news.bbc.co.uk FRIDAY 10TH OCTOBER 2008 - UK house
prices registered a 1.3% fall in September, according to the
Halifax. The lender said the drop meant the annual fall now stood
at 12.4%, with the cost of the average home in the UK now at
£172,108. It joined the Nationwide in claiming that the rate
of decline was starting to stabilise when looking at three-month
comparison figures. But it said the state of the market would
remain 'challenging' as mortgage availability was still tight. The
annual rate is calculated using a comparison of the past three
months compared with the same three months a year ago, aiming to
cut out any short-term volatility. When comparing prices in just
September with the same month the previous year, the drop in prices
reaches 13.3%, the biggest recorded by the Halifax. September was
the eighth consecutive month that prices fell compared with the
previous month. Rate cut - The average price of a UK home is close
to that seen in January 2006. 'The ongoing pressures on
householders' income, combined with the reduction in the
availability of mortgage finance mean that market conditions will
remain challenging,' said Martin Ellis, chief economist at the
Halifax. But he welcomed the move by the Bank of England's Monetary
Policy Committee to cut interest rates by half a percentage point
to 4.5% on Wednesday. 'Lower interest rates will help mortgage
borrowers faced with increasing pressures on their finances and
provide a valuable support to the housing market,' Mr Ellis said.
Stabilising? Prices declined by 5.2% in the third quarter of the
year, close to the 5.1% fall of the previous three months. This was
evidence that the pace of decline was stabilising, Mr Ellis said.
But with food and fuel prices having risen over the last year, and
wages failing to keep up with the increase, households had less
discretionary income. 'The resulting pinch on incomes, combined
with the high level of average house prices in relation to
earnings, has made it difficult for potential house purchasers to
enter the market,' he said. Others agreed that the pace of decline
could stabilise soon. The year-on-year falls in house prices should
hit a maximum of 15% next month and fall no further, according to
Ray Boulger, of mortgage brokers John Charcol. Prices were still
rising up to October last year, before the effect of the credit
crunch hit. As a result the year-on-year comparisons have been
striking in recent months, he said. He said the Halifax figures
were 'not surprising'. But Howard Archer, chief UK and European
economist at Global Insight, said he expected house price falls to
continue. 'Faster rising unemployment, heightened concerns over the
economic outlook and widespread expectations that house prices will
continue to fall markedly seem set to depress housing market
activity and prices for some considerable time to come,' he said.
Banks hesitant Despite hopes that Wednesday's rate cut will spur
lending and boost the housing market, banks have been slow to pass
on previous rate cuts to new and existing borrowers, as they
continue to scale back lending. The latest Bank of England figures
show the average mortgage rate paid by new borrowers rose from
5.88% in August 2007 to 6.1% in August 2008 despite a
three-quarters of a percentage drop in the Bank rate over the same
period. The average mortgage rate for those with existing mortgages
has dropped from 5.91% in August 2007 to 5.83% to August 2008,
although it has fluctuated during the year. These cuts made by the
Bank of England's Monetary Policy Committee have benefited existing
borrowers, mainly those on tracker rates. Earlier this month, the
Royal Institution of Chartered Surveyors reported that completed
property sales in August were 47% lower than in the same month a
year ago.