Casa Blog – UK Property Search

UK house prices saw their biggest fall in 12 years during November, according to the latest survey from mortgage lender Nationwide.

The firm’s data suggests the cost of an average home slid by 0.8% from a month earlier - the first drop in price seen since February last year.

The annual rate of house price inflation now stands at 6.9%, down from 9.7% reported in October.

The weak figures from Nationwide came as the Bank of England said the number of
mortgage approvals fell to a near three-year low.

According to the Bank’s latest report, 88,000 new mortgages for home buyers were approved in October, 12% lower than in September and down 31% from October a year ago.

Fionnuala Earley, Nationwide’s chief economist, said: “November’s data confirms that the housing market is indeed cooling in line with the weakening in housing market drivers. Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market.”

“Looking forward, it is clear that there are uncertainties in the market, not least from the continuing turmoil in the UK’s financial markets and the overall impact that this may have on the future performance of the UK economy.

However Ms Earley said an outright recession in the property market was unlikely.

“With interest rates on the way down and the continued issue of undersupply of housing in the UK market, the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest,” she said.

The booming London property market finally showed signs of slowing during October with house prices in the capital falling by 0.6%, according to the latest monthly figures from the Land Registry.

Its October’s House Price Index showed the first monthly decline in the capital since April 2006 and the sharpest drop since August 2005.

Meanwhile, prices across England and Wales were up 0.1% over the month, far less than the average monthly increase over the last 12 months of 0.7% and the weakest rate this year.

Chief UK economist at Global Insight, Howard Archer, predicted the situation in London could worsen.

“House prices in London could be markedly hit by City job losses and reduced bonuses, particularly if the credit crunch and financial market turmoil proves extended, which seems increasingly likely,” he said.

He argued this could contribute to a significant fall in annual price inflation more generally.

However, Ed Stansfield, property economist at consultancy Capital Economics, said the downturn in the London market was not necessarily the start of a slowdown.

“The fall in London house prices reported in October did not even reverse the previous month’s rise, and could yet turn out to be simply noise rather than a new trend,” he said.

“Even so, it will doubtless fuel concerns over the housing market outlook, since house price developments in the capital often act as a lead indicator for the wider market.”

Annual house price inflation in England and Wales is now at the lowest level for 16 months, after average prices fell for the second consecutive month, according to analysts Hometrack.

Hometrack said house prices were 3.6% higher than a year ago, down from an annual rate of inflation of 4.4% in October.

Hometrack also recorded several other indicators of a slowing market.

The average time a property stayed on the market rose to 8 weeks from less than 6 weeks earlier in the year. Hometrack predicted this could soon break through a five-year high of 8.1 weeks hit at the start of last year.

The proportion of property sales achieving the asking price fell to 93.8% – a two year low.

According to Hometrack demand has been curtailed by a continued tightening of lending criteria, along with stretched affordability levels and modest improvements in average incomes.

Higher interest rates in the past 12 months have also played a part.

First-time buyers are facing hard times as affordability continues to deter purchasers, while potential sellers are increasingly unwilling to do so due to concerns over a major correction in prices in the coming months.

Richard Donnell, Hometrack’s director of research, said: “Continuing focus on the fall out from the credit squeeze, along with relatively high interest rates is resulting in widespread caution among homeowners, the majority of whom do not need to move and who are sitting back until the outlook becomes clearer.”

“The Christmas slowdown looks to have started early,”Mr Donnell said,”It is hard to see the catalyst for any short term turnaround in market confidence other than interest rate cuts early in the new year.”

Hometrack predicts house prices in Britain will rise by just one percent next year, noting that the lack of supply coming onto the market should prevent widespread price falls.

The cost of property fell by 0.7% during the past month, with lower asking prices in all regions bar London, where the average cost of a home rose by 2.3%.

According to Rightmove, the property website, said there had been an early onset of the traditional winter slump in sales, increasing the average time a property spends on the market before a sale was agreed to 92 days.

The fall during the four weeks to November 10 knocked about £1,656 off the average cost of a home in England and Wales, from £241,642 to £239,986.

Rightmove said it expected there to be further falls during December and the early part of next year, before a more stable financial environment and underlying demand led to some minor price gains later in the year.

Overall the group said it expected prices to remain flat during the year as a whole. But it added that a major price correction remained unlikely as long as the economy avoided recession, as the market would be underpinned by demand continuing to outstrip supply.

Miles Shipside, commercial director of Rightmove, said: “Prices are set to flatline in 2008.”

“While we do not expect a price drop overall, there will be parts of the country that are over-priced and over-supplied for the likely levels of affordability and demand next year.

“In these areas, motivated sellers are starting to cut their prices and will need to be the cheapest on the street to sell.

“While bargain hunters will be paying less for these properties, prices will rise where demand continues to outstrip supply in quality areas close to major conurbations, especially London.”

Annual house price inflation will fall from its current level of 9.7% to 0% next year, according to one of the country’s biggest mortgage lenders.

Nationwide cited a slowing economy, tighter credit conditions, prices beyond the reach of many first-time buyers and lower price expectations as reasons for the fall.

“As we move into 2008, economic tailwinds are increasingly being replaced by headwinds,” said Fionnuala Earley, Nationwide’s chief economist.

However, Ms Earley also said that the slowdown would be a “far cry” from the conditions in the early 1990s when Britain suffered a recession.

The building society expects there will be a significant regional variation in house price growth in the coming twelve months.

In Scotland, where the house price to earnings ratio is lower than elsewhere in the UK, prices are expected to be 4% higher next December.

At the other end of the scale, Northern Ireland is expected to see a 5% price decline, after soaring price rises, which were running at an annual rate of 40% during the third quarter of the year, made it the least affordable place in the UK to buy a house, with the price of a first property averaging eight times local earnings.

Prices are also set to fall by 2% in the North and North West and by 1% in the South West, Wales and Yorkshire and Humberside, while remaining static across the Midlands and East Anglia.

In London and the South East, house prices are forecast by the Nationwide to rise by just 1% against the roaring double digit inflation of recent years.

Property website Hometrack and the Council of Mortgage Lenders have both predicted prices will edge ahead by 1%, while Capital Economics has predicted house prices will fall by 3% during both 2008 and 2009.

Although gross lending declined during September, the remortgaging market saw an increase according to the latest figures from the Council of Mortgage Lenders (CML).

The decline in total lending from £34 billion in August to £30.6 billion in September is largely attributed to higher borrowing costs, while monthly remortgaging levels rose by £100 million to £11.1 billion – helped as homeowners coming off fixed-rate deals looked to refinance.

Michael Coogan, director general of the CML said that he expected buying activity to “remain subdued”, although “rates have not reached their peak and a move downwards will help ease some of the pressure on household finances”.

“Looking forward, we expect remortgaging to continue to hold up as borrowers coming off fixed rate deals look to re-finance. However, market conditions may mean that mortgage customers see an increase in costs, and the Bank of England’s decision not to reduce rates earlier this month will have disappointed many borrowers.”

CML recently predicted that gross lending will decline in 2007-08 from £360 billion to £340 billion. It claims the mortgage market will be slower but by no means “stagnant”.

House prices are falling at the fastest rate for more than two years according to the latest survey from the Royal Institution of Chartered Surveyors (RICS) which represents about 150,000 property surveyors.

The gauge, showed that 22.2 per cent more of its members reported a fall in house prices than those who saw a rise.

The sharpest falls in price were reported in East Anglia and the West Midlands, with London the only region of England and Wales where prices are not now falling.

This follows last weeks announcement from the Halifax that house prices fell in October for the second month in a row.

House prices fell for the second month in a row for the first time in two-and-a-half years, according to the Halifax house price survey.

In its monthly survey of the sector, the Halifax, which is part of the HBOS PLC banking group, said house prices were 0.5% lower between September and October after a 0.6% fall the previous month.

The fall has reduced annual price inflation to 8.9%, from a high point of 11.4% in August.

Martin Ellis, chief economist at Halifax, said: ‘The rise in interest rates since August last year and negative real earnings growth so far this year are curbing housing demand, leading to a slowdown in both price growth and activity.’

However, Mr Ellis said he did not expect to see prices crash.

“The UK economy is in a strong position and that sound market fundamentals, including high levels of employment and a shortage in the supply of properties will continue to support house prices,” he said.

By contrast, Nationwide building society reported earlier this month that prices had risen by 1.1% in October, but experts warn that monthly volatility was a typical feature of a ‘more subdued market’.

Howard Archer, chief UK economist at analysts Global Insight, said: “Most data and survey evidence are pointing to weakening housing market activity and cooling prices in the face of slowing activity, increased affordability pressures and tightening lending practices, and the Halifax data are certainly consistent with this.”

“We expect these factors to increasingly bite over the coming months.”

Beyond this, most experts are predicting a virtually static market in 2008.

Hometrack and the Council of Mortgage lenders both expect a 1% rise in prices next year, while Capital Economics is predicting a 3% fall.

This lunchtime the Bank of England’s Monetary Policy Committee will announce its latest interest rate decision.