UK sees biggest fall in home prices since 2002

August 19, 2008
UK sees biggest fall in home prices since 2002
Property slump deepens as banks starve market of mortgage loans

(LONDON) UK house prices posted the biggest annual decline since at
least 2002 as banks choked off mortgage lending, deepening London's
property slump, Rightmove plc said.

The average asking price for a home fell 4.8 per cent in August from
a year earlier to £229,816 (S$606,350), the biggest yearly drop since
Rightmove began measuring home values six years ago.

Britain's most-used property website also said yesterday that prices
dropped 2.3 per cent in the month, the most since December, led by
London.

'The lack of mortgage finance is central to the problem,' Miles
Shipside, commercial director of Rightmove, said in the
statement. 'London, in particular, appears to be having its own
special summer sale, with over £21,000 off in a month.'

Bank of England governor Mervyn King said last week that the housing
market faces 'a significant adjustment' as banks ration loans for
home buyers. Falling prices may exacerbate the economic slowdown as
the threat of a recession looms and unemployment rises the most in 16
years.

The pound traded at 1.8671 against the US dollar at 10.05am in
London, from 1.8623 on Sunday, the currency's first gain in 12 days.
Against the euro, it was at 78.90 pence.

Prices in London fell 5.3 per cent on the month and 3.8 per cent from
a year earlier. Each of the 32 districts in the capital showed a
decline, and the biggest drop was in the south-west area of
Wandsworth, where values fell 7.9 per cent. Hackney, in east London,
was the best performer, with a 0.6 per cent decline.

The stock of unsold property per real estate agent rose for a seventh
month to 78, from 77 in July. The number of transactions may reach
the lowest since 1959, Rightmove said.

Banks have starved the market of loans after more than US$500 billion
in losses and writedowns worldwide from the US mortgage market
collapse. UK mortgage approvals fell to the lowest since at least
1999 in June, the Bank of England said on July 29.

The Royal Institution of Chartered Surveyors said last week that the
housing market is at a 'virtual standstill'. Mr King said on Aug 13
that 'there is a feeling of chill in the economic air' and that 'the
British economy is going through a difficult and painful adjustment'
that 'cannot be avoided'.

Weakness in the housing market may 'amplify' the impact of the
lending squeeze on household spending, the central bank said last
week.

Retail sales probably fell for a second month in July, dropping 0.2
per cent, according to the median forecast of 32 economists in a
Bloomberg News survey. The government's statistics office will
release that data on Aug 21.

Britain's gross domestic product will either stagnate or contract in
the next two or three quarters, meaning the economy may fall into a
recession, the British Chambers of Commerce said in forecasts
released yesterday.

Confidence on business prospects fell to the lowest level in at least
six years, according to a survey of more than 200 companies released
by Lloyds TSB Group plc yesterday.

The index of sentiment on the next 12 months fell to 22 in July, the
lowest since the survey began in 2002, from 32 in June.

The economy probably grew 0.1 per cent in the second quarter, less
than previously estimated and matching the slowest pace since the
aftermath of the last recession in 1992, the median forecast of 34
economists surveyed by Bloomberg News shows.

The statistics office will publish the figures on Aug 22.

The central bank kept its benchmark interest rate at 5 per cent on
Aug 7 for a fourth month, as policy makers weighed the risk of
accelerating inflation against the threat of a recession. Minutes of
their meeting, showing how the panel voted, will be released
tomorrow.

The ongoing fall in house prices 'is set to become increasingly
painful for consumers over the next year', Lena Komileva, an
economist at Tullett Prebon in London, said in a note to clients
yesterday.