New data fuels house price fears
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Fears that Britain's housing boom is over were fuelled yesterday by weak data from Nationwide showing the lowest rise in house prices in over two years while mortgage lending continued to fall, according to Bank of England figures. With the property market starting to deteriorate in all areas, analysts are predicting that it will not be long before house prices see falls of up to 5%. In its latest snapshot of the market, Nationwide said prices slipped 0.5% in February, taking the annual rate for house price inflation down from 4.2% to 2.7% - the weakest since November 2005. The fourth consecutive month of falling prices reduced the average cost of a home to £179,358. The three-month figures, which are considered to give the most accurate picture of the state of the market, showed a 1% fall in prices, down from a 0.4% drop last month. "This means that the average house has lost more than £6,500 since October," said Seema Shah, economist at Capital Economics. "Annual house price growth appears to be fast approaching negative territory." But Fionnuala Earley, Nationwide's chief economist, said it was no surprise prices had fallen, given recent low levels of mortgage approvals and fall-off in interest from buyers. "This reluctance on the part of buyers is not surprising given uncertainties in the market, and it is unlikely we will see levels of activity returning to trend levels for some time," she said. Many mortgage lenders have been cutting back on 100% loans as they become more cautious about lending amid the riskier economic environment. This is reducing the number of first-time buyers who can afford to get on to the property ladder. Earley added it was clear that recent double-digit growth in the housing market and the UK economy would not be repeated "for some time". Bank of England data showed that mortgage approvals unexpectedly picked up slightly last month from a series low. The Bank said there were 74,000 mortgage approvals for house purchase in January - up from a downwardly revised 72,000 in December. But this was still the lowest since September 1995. Mortgage approvals for new house purchases remain 40% lower than a year ago. Growth in mortgage lending slipped to £7.4bn in January, compared with £7.9bn in December, confounding City expectations of an £8.1bn rise. The annual rise of 9.7% is the weakest since October 2001. "Demand for, and supply of, credit in the UK mortgage market remains very weak and is set to ease further," said George Buckley, an economist at Deutsche Bank. Analysts said the data showed how the housing market continues to suffer because of affordability and tighter lending conditions after the credit crunch. "It is only a matter of time before house prices start falling year-on-year with an ultimate decline of 5% in 2008," said Shah. The Bank of England cut interest rates in February by a quarter point to 5.25% in an attempt to shore up the UK economy. However, it is expected to hold fire on further cuts until the middle of the year due to fears of inflationary pressures. But economists say borrowing costs may have to come down sooner if the economy deteriorates sharply |
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