Casa Blog – UK Property Search

House prices fell by 2.5% in March, the biggest monthly decline since the recession of the early 1990s, much more than many analysts had forecast, the Halifax has said.

Analysts had forecast a monthly fall of just 0.4% and an annual three-month gain of 2.3%.

Nationally, house prices are now just 1.1% higher than they were a year ago and prices have fallen 1% in the first quarter of 2008.

Martin Ellis, Halifax chief economist, said: “This fall is continuing the pattern whereby the market is readjusting.  Sellers are having to adjust the price they ask for their properties.”

But he said the group still expected there to be only a modest (low single digit) decline in UK house prices this year because of the shortage of new houses, a strong labour market and low interest rates.

Mr Ellis added the recent drops needed to be viewed in the context of the significant price rises over recent years.

“UK prices have increased by 171% over the past ten years and by 51% over the last five years.  The average UK price has risen by £120,860 during the past decade from £70,696 to £191,556.”

Regionally, there was a mixed picture, with the biggest house price rises in Greater London (1.6%), East Anglia (1.4%) and the East Midlands (2.2%).  However, prices also fell in a number of regions, the largest being the West Midlands (down 5%) and Wales (down 4.7%).  Also in the minus column were the South West (-2.6%), Northern Ireland (-1.5%), Yorkshire & the Humber (-0.5%) and the North West (-0.5%).

The data from the Halifax follows the Nationwide reporting that house prices had fallen for five months in a row.  Latest figures from the Bank of England show that mortgage approvals edged down to 73,000 in February from 74,000 in January.  This was the second lowest level since current records began in 1999.

Analysts said that the weaker-than-expected data from the Halifax would raise expectations that the Bank of England would cut interest rates by at least 0.25% to 5% on Thursday.

However, because the lack of liquidity in money markets is making it more expensive for banks to borrow, a rate cut would not necessarily be passed on to mortgage holders, observers say.

“The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity in the market,” said Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors (Rics).

“Loan-to-value (LTV) ratios are being lowered at the same point as borrowing rates are being raised, putting increasing pressure on first-time buyers who are having to find ever larger deposits,” he added.

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