UK house prices tumble for the first time in two years

House prices in the UK have fallen for the first time in two years, according to the Halifax bank, Britain's biggest mortgage lender.

The fall represents the first reverse move on the market since August 2002, with prices taking a stumble of 0.6 per cent in August.

The decline reduced the annual rate of inflation from 22 per cent to 19 per cent.

The findings from Halifax, part of HBoS, coincide with research from Nationwide that shows house prices are at their slowest rate for three years.

Previously, Freelance UK reported a freeze in the housing market after a report from the Royal Institute of Chartered Surveyors first suggested the boom had come to a standstill.

At that time, the average price of a property in the UK was billed at just above the £160,000 mark, according to Halifax figures.

This price tag goes some way to explain figures from the Council of Mortgage Lenders which show first-time buyers were responsible for only 28 per cent of home loans in the three months up to July, well below the 10-year average of 44 per cent.

The figures have prompted many economists to argue UK house prices have risen to an artificial high and correction is inevitable.

"House prices have increased by 1.8 per cent during the past three months," explains Martin Ellis, chief economist at the Halifax.

"This is significantly below the 6.5 per cent rise recorded in the previous months, providing further evidence that the housing market is slowing in response to the recent series of interest rate rises."

He indicated that a market crash as dramatic as seen in the early 1990s was not on the cards, as the fall in price could even be a glitch in the market.

"Occasional falls are part of the fluctuations in the housing market," he said.

Some analysts suggest the price slump marks the end of the housing boom with warnings of a crash between 10 per cent and 30 per cent possible, over the next two-and-a-half-to-three years.

Capital Economics said the slowdown means its prediction of a 20 per cent fall in house prices by the second half of 2004, "remains on track."

Ed Stansfield, analyst at the group, said: "At these levels house prices are simply unsustainable and will fall by 20 per cent."

Figures form the Bank of England show the number of loans approved for house purchases fell in June from 112,000 to 97,000 in July.

The Bank's Monetary Policy committee will meet on Thursday to discuss whether to lift interest rates but most experts say a no-change outcome is likely.

Howard Archer, economist at Global Insight, stated: "With consumer spending [also] showing signs of moderating in July and August, there is a growing possibility that the Bank of England could leave interest rates unchanged through the rest of this year."

 

8th September 2004

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