UK house prices plunge 10.5%

UK house prices are falling at their fastest rate for nearly 18 years as potential buyers stay away from the market, figures showed today.

The average cost of a home in the UK has dived by 10.5% during the 12 months to the end of August, the biggest drop since the final quarter of 1990, according to Nationwide Building Society.

The rate at which property values are sliding also accelerated during the month, with prices falling by a further 1.9% in August, following drops of 1.5% and 0.9% in July and June respectively.

House prices have now fallen for 10 months in a row and lost 10.3% of their value since the beginning of the year, to leave the average property costing £164,654 (€205,000).

Fionnuala Earley, Nationwide’s chief economist, said: “While the pace of monthly falls picked up during the month, the less volatile three month on three month measure eased very slightly in August to 4.5% from 4.6% in July.”

She said recent activity levels in the market had been “very subdued”, although she added that data from estate agents suggested that some “glimmers of interest” were returning to the market, possibly as a result of price falls and the opportunity buyers had to negotiate big discounts.

On a brighter note, she said that while there was still a great deal of uncertainty, the Bank of England’s forecasts for growth and inflation have been widely interpreted as opening the door to rate cuts.

She said market rates had responded to this, and as a result mortgage rates, particularly fixed-rate deals, had come down.

There have been signs of competition returning to the mortgage market in recent weeks, with a flurry of lenders making repeated reductions to their mortgage rates, as they once again compete for business.

But the competition is limited to borrowers with large deposits, with many lenders now offering their best deals only to people borrowing less than 60% of their home’s value.

The housing market downturn was caused by a combination of stretched affordability due to strong house price growth in recent years, and the shortage of mortgages available as a result of the credit crunch.

But interest rate cuts alone are unlikely to revive the market, as potential buyers sit in their hands until the outlook for house prices becomes clearer.

Ms Earley said: “We expect the next move in the bank rate to be down, but the extent to which this will revive the mortgage and housing market is likely to be limited while overall confidence in economic and housing market conditions is low.”