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House prices fell by 1.8% in February as confidence in the UK property market
failed to pick up, according to the Nationwide building society.
The lender said that the average UK property had fallen in value by 17.6% over
the past 12 months, to 147,746.
Although cuts in interest rates have made mortgage repayments cheaper for some,
this has yet to be seen in increased sales, it said.
But it added that "curiosity" in the market was growing.
Nationwide's chief economist Fionnuala Earley said that falling prices and
interest rates meant sales could pick up quickly once confidence returned.
But she said that this might not be for some time yet.
"Further cuts in [interest] rates will be welcome in the housing market, but
the economic conditions that require them will mean that there is unlikely to
be a swift turnaround in the housing market in 2009," she said.
Mortgage costs
The figures come shortly after figures from the major banks suggested that
mortgage approvals in the UK rose slightly in January.
It is too early to say that the market has reached its trough, given the
economic recession
Fionnuala Earley
Nationwide chief economist
However, the British Bankers' Association's mortgage figure was still 43% lower
than the same month a year earlier.
This shows how much weaker the housing market has become compared with a year
ago, despite falling mortgage costs.
Existing borrowers on variable rate deals have seen their mortgage payments
fall by about a third since the end of 2007, or 240 a month on average.
Nationwide said that borrowers in areas of the UK with the highest house prices
had seen the biggest falls in their mortgage repayments.
Homeowners in London were benefiting from monthly cuts in their bills of 350
since the end of 2007, compared with about half this amount for those in the
north of England.
"It is too early to say that the market has reached its trough, given the
economic recession. However, falling house prices and interest rates have made
the situation for borrowers today much easier than it might have been," said Ms
Earley.
First-time buyers
She added that high up-front deposits currently being demanded by lenders were
proving a "constraint" on first-time buyers entering the market, despite the
lower monthly repayment costs.
Borrowers needed to put down at least 40% of their home's value to qualify for
a fifth of mortgage deals.
The expectation of further falls in house prices was leading to some potential
buyers delaying any entry into the housing market.
However, she suggested that confidence in the market could begin to pick up
later in the year, with consumers becoming "a little more optimistic" about the
path of house prices.
"While lower interest rates alone will not lead the housing market to suddenly
pick up, more affordable loans will provide support for both new and existing
borrowers in the weak economic environment," said Ms Earley.
Market experts are expecting prices to keep falling this year, probably until
the economy stops shrinking, with continued restrictions on credit reducing the
number of people taking out mortgages.
But David Smith, senior partner at Dreweatt Neate estate agents, suggested
there was some activity for high-value purchases.
"Although there are clearly still financing issues for the first-time buyer,
people who are unaffected by the broader economic turmoil, specifically those
at the higher end of the market, sense an opportunity and are now making their
move," he said.