Survey reveals second month of UK house price fall
There was more evidence today of a slowing British housing market after a major survey revealed prices fell for the second month in a row.
Building society Nationwide said UK house prices this month dropped 0.5% compared to November.
The three-month on three-month rate of growth - a smoother indication of house price trends according to the lender - also fell from 1.4% last month to 0.9% in December, the lowest level for two years.
Nationwide said annual house price inflation fell back to a 19-month low of 4.8% in December, down from 6.9% in November and a peak of 11.1% in June.
The lender said the average price of a UK house was now £182,080 (€248,021) - up £8,334 (€11,352) on the year.
Fionnuala Earley, chief economist at Nationwide, said the housing market had weakened significantly towards the end of this year.
She said: "Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year."
Howard Archer, economist at Global Insight, said the news would maintain pressure on the Bank of England for an interest rate cut in the New Year.
He said: "It is clear that the housing market ended 2007 under mounting pressure from increased affordability pressures and tightening lending practices, and it looks set for further deterioration in 2008.
"The rising risk that the housing market could be headed for a sharp correction maintains pressure on the Bank of England to trim interest rates again early in 2008."
Just before Christmas, property group Hometrack said house prices suffered their biggest monthly decline for nearly three years.
Hometrack's latest monthly survey said the average house price fell 0.3% in December compared to November, the largest monthly fall since January 2005.
The Bank of England is widely expected to make two interest rate cuts in 2008, down to 5%.
Ms Earley said this would help the market recover later in the year, but that it was unlikely to lead to a "big recovery" in activity.
"This time around lower interest rates are more likely to stabilise market activity rather than re-ignite it," she said.
Yesterday the UK's main high street banks said they lent £4.3bn (€5.85bn) on mortgages in November - £500m (€681.1m) less than the previous month.
While the number of mortgage approvals recovered 4% to 44,811 from a record low in October, the figure was almost 44% below the level of approvals a year earlier.
Mr Archer said he forecasts a house price fall of 3% next year, but warned that a larger "correction" may be looming.
He added: "Probably the biggest risk is that the economy slows sharply over the coming months and unemployment starts rising significantly.
"This would be liable to lead to a marked increase in the number of people having to sell for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house.
"A sharp housing market correction could also be triggered if both sellers and buyers start expecting prices to fall sharply.
"This could prompt a flood of sellers putting their houses on to the market to try and sell their houses before prices fall markedly, while at the same time prospective buyers hold off in the expectation that prices will fall."
