UK house price fall biggest since '01: research firm

July 29, 2008
UK house price fall biggest since '01: research firm
Average cost of residential property down 4.4 per cent in July from a
year ago

(LONDON) UK house values fell by the most in at least seven years in
July and the property slump will continue for months, Hometrack Ltd
said.

The average cost of a residential property in England and Wales
slipped 4.4 per cent from a year earlier to £168,500 (S$361,600), the
London-based research company said yesterday in a statement. That's
the biggest annual drop since the index started seven years ago.
Prices fell 1.2 per cent from June.

'With no immediate end in sight to the current uncertainty, activity
levels are likely to remain suppressed with prices remaining under
pressure into the autumn,' said Richard Donnell, director of research
at Hometrack, in an emailed statement. Prices 'are now back to levels
last seen in October 2006'.

Banks have raised mortgage rates and limited the supply of credit,
reversing a decade-long property boom in which prices tripled. The
Bank of England kept the benchmark interest rate at 5 per cent this
month on concerns that inflation is accelerating, even as the economy
risks slipping into a recession.

The pound fell after yesterday's report to US$1.9869 from US$1.9906
on July 25. Against the euro, it fell to 0.2 per cent 79.14 pence as
of 10.01am in London.

The majority of house-price declines were in southern England. Demand
for housing has declined 20 per cent in the past three months,
Hometrack said.

However, a shortage of housing supply will still drive prices up by
25 per cent by 2013, the National Housing Federation said in a report
yesterday, citing research by Oxford Economics. Average home values
will drop 4.4 per cent this year and 2.1 per cent in 2009 before they
start rising again, the group, which represents 1,300 housing
associations in England, said on its website.

Central bank policy-makers said this month that the housing downturn
has 'gathered momentum', minutes of their monthly meeting showed last
week. The Monetary Policy Committee split three ways in its interest-
rate vote. Timothy Besley favoured an increase to help stem the
fastest in inflation in a decade and David Blanchflower supported a
cut to ease the economic slowdown.

Britain's economy grew 0.2 per cent in the second quarter, matching
the slowest pace since 2001. Unemployment jumped the most in June
since the aftermath of the last recession in 1992 as homebuilders and
banks cut jobs.

Banks are curbing lending following the collapse of the US sub-prime
mortgage market, which so far has cost financial institutions
worldwide US$469 billion in writedowns and losses. UK mortgage
approvals slumped in June to the lowest level in at least a decade,
according to the British Bankers' Association.

Demand for farmland also declined for the first time since 2005 in
the first half of the year, the Royal Institution of Charted
Surveyors said in a separate report yesterday.

The deteriorating economic outlook has contributed to the pound's 12
per cent decline against a currency basket of Britain's main trading
partners, making exports cheaper for overseas buyers.

The weaker pound 'won't prevent the credit crunch, a major housing
downturn and a sharp retrenchment in corporate spending from sending
the economy into recession', Roger Bootle, chief economic adviser to
Deloitte & Touche LLP in London, wrote in a report published on
Sunday.