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House prices 'fall another 1.8%'

2009-02-26 05:26:10

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.