UK Home Prices Fall For First Time Since 2002

Source : The Business Times, July 22, 2008

(LONDON) UK house prices dropped this month from a year earlier for the first time since Rightmove plc started measuring them in 2002, as the squeeze on lending pushed up the number of unsold properties to a record.

The average asking price for a home fell an annual 2 per cent to £235,219 (S$634,000), Britain's most-used property website said in a statement yesterday. On the month, prices declined 1.8 per cent, the biggest drop since December. Prices increased in London by 0.3 per cent from last month.

House prices will fall about 10 per cent this year and 6 per cent in 2009, the Ernst & Young ITEM Club, a forecasting group which uses the same model as the Treasury, said yesterday.

Britons, laden with a record £1.4 trillion of debt, are struggling to afford homes as banks curb lending and credit costs increase.

'Banks need to be careful they do not get blamed for a second crash in 20 years' by limiting loans, Miles Shipside, commercial director of Rightmove, said in the statement. 'The 'doom and gloom' attitude should be about the drastically low levels of sales, which affect the wider economy.'

House prices may fall further by as much as 30 per cent and unemployment will increase as the UK slips into a recession, Bank of England policymaker David Blanchflower said in an interview published in The Guardian yesterday. The economy may already be contracting, the newspaper cited him as saying.

The pound fell against the US dollar after Rightmove's report and Mr Blanchflower's comments.

The stock of unsold property per real estate agent rose for a sixth month to 77, the highest ever measured by Rightmove, from 74 last month. Prices for properties in the West Midlands fell the most on the month, declining 3.7 per cent. London was the only region to show an increase in prices, the report showed.

Property sales dropped to the lowest in at least 30 years, the Royal Institution of Chartered Surveyors (RICS) said last Tuesday.

The ITEM Club forecast yesterday that housing transactions would drop 35 per cent this year.

Demand for commercial property dropped in the second quarter to the lowest in at least a decade, RICS said yesterday. Fifty per cent more surveyors reported a drop in demand than those reporting an increase, the report showed.

Mortgage approvals fell to their lowest level in at least nine years in May, the Bank of England said on June 30. Banks are curbing lending following the collapse of the US sub-prime mortgage market, which so far has cost financial institutions worldwide US$423 billion in losses and writedowns.

HBOS plc, the UK's biggest mortgage lender, said last week that house prices, which tripled in the past decade, dropped last month from a year earlier by the most since 1992. Bank of England policymaker Andrew Sentance said in an interview last week that there is 'clearly a risk' that house prices will fall further.

Consumer price increases and the worst housing market slump since the last recession have eroded living standards and helped push the support for Prime Minister Gordon Brown's ruling Labour Party close to the lowest level since World War II.

The Bank of England's Monetary Policy Committee has kept the benchmark interest rate unchanged at 5 per cent for the past three months as it tries to curb consumer spending, while keeping the economy from falling into a recession. Inflation accelerated to 3.8 per cent last month, the fastest pace in 11 years.

The economy will grow 1.5 per cent this year and then one per cent in 2009, the weakest pace since 1992, the ITEM Club said in a statement yesterday. The group predicted that slowing expansion will allow the Bank of England to cut the benchmark interest rate to 4 per cent by the end of 2009. - Bloomberg