House prices slump at fastest rate for nine years

A monthly check of house prices in England suggests the fastest rate of decline in nine years, according to a research from the Royal Institute of Chartered Surveyors.

The respected reading of UK property trends shows three interest rates since over four months has rocked levels of confidence.

Although a crash is ruled out by the RICS, the monthly verdict reveals the highest ratio of surveyors since 1995 reported price reductions.

Almost a third of surveyors reported a fall rather than a rise in house prices in the three months to September while house sales were down on 14 per cent a year earlier.

Meanwhile, property website, Rightmove, confirms asking prices dropped from 16.4 per cent in September to 13.4 per cent in October, charting the group's worst slowdown for a year.

Rightmove adds buyers were appearing to adopt a more realistic view of the value of their homes, with many swayed into action by the five interest rate rises, over just twelve months.

Indicators show average asking prices have actually risen, moving 0.6 per cent ahead of £193,536 from the previous month.

The unlikely event of a house crash has been further represented by the Item Club, an economic forecasting group sponsored by Ernst & Young.

It rules a major housing crash as "remote" and rejected claims of slumps in price by up to 40 per cent.

"Forecasts of crash and burn in the housing market will yet again turn out to be wild of the mark," said Peter Spencer, economist at the Item Club.

"After all, inflation and interest rates remain at a historically low figure and as our summer forecast confirmed, we are close to full employment in the UK."

Mr Spencer's comments coincide with City estimates that mark the base rate of 4.75 per cent needing to raise to 9 per cent before mortgage payments reach crisis levels, seen in the 1990s.

It adds that the base rate would have to hit 6.1 per cent before average income for buy to let was wiped out.

Ernst and Young's Item Club predicts house prices will rise 1.3 per cent in 2005 and fall marginally in 2006, returning to "healthy growth" in the medium term.

 

19th October 2004

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