London Residential Prices Slide 10.1%

Source : The Business Times, December 30, 2008

Prices seen to fall a further 10% in 2009, 3% more in 2010

(LONDON) London house prices fell more than in any other UK region this year and probably will decline further in 2009 as the economy sinks deeper into a recession, Hometrack Ltd said.

Residential property prices dropped 10.1 per cent in the capital, more than the 8.7 per cent average across the country, the property researcher said in a report yesterday. London house prices fell one per cent in December alone, compared with a 0.9 per cent drop across Britain.

'The onset of recession and the prospect of rising unemployment over 2009 will continue to damp confidence and in turn demand, which will inevitably lead to further house price falls over the next 12 months,' Richard Donnell, Hometrack's director of research, said in a statement.

Banks are rationing credit as they rebuild their balance sheets and brace for the recession, hurting the ability of consumers to afford moving.

Prime Minister Gordon Brown's government will announce new measures next month to revive lending after institutions failed to pass on the full impact of Bank of England interest rate reductions.

Hometrack, which surveyed 1,809 real estate agents and surveyors, said that many homeowners are choosing not to move as unemployment rises and companies including Woolworths Group plc and MFI Group Ltd tip into bankruptcy. Consumer spending shrank in the third quarter, triggering the biggest contraction in economic growth since 1990.

British consumers stepped up repayments on loans made against their homes in the third quarter, retiring £5.7 billion pounds (S$12.2 billion) of so-called housing equity withdrawal debt in the three months to September.

That compares with £2 billion in the quarter ending at the end of June, which was the first time in a decade that repayments exceeded new borrowing, the central bank said yesterday.

Bank of England policymakers have indicated that they may cut the benchmark rate further after trimming it to the lowest level since 1951. The key rate, now at 2 per cent, has declined by 3.75 percentage points in the past year.

House prices in London fell more sharply than the 9.5 per cent decline in East Anglia and 9.2 per cent in the south-east, the report showed.

Hometrack expects prices to fall a further 10 per cent next year and 3 per cent more in 2010, the researcher said on Dec 22. Rightmove plc and the Royal Institution of Chartered Surveyors have also forecast a 10 per cent decline for 2009.

The number of home sales fell 45 per cent this year and will probably drop another 12 per cent in 2009, the Hometrack report said. On average, homeowners will move once every 31 years in 2009, double the rate during the last decade.

Home loan approvals plunged 61 per cent to 17,773 in November from a year earlier, the British Bankers' Association said last week. -- Bloomberg