House prices now lower than a year ago

1 May 2008

House prices are lower than they were a year ago for the first time since 1996, a property survey revealed today.

It follows 133 consecutive months of annual house price growth since March 1996. The news came as a rate-setting member of the Bank of England's Monetary Policy Committee gave a stark warning. David Blanchflower - an advocate of early and aggressive rate cutting - said: 'A correction of approximately one third in house prices does not seem implausible in the UK over a period of two or three years.'

He said the latest figures on mortgage approvals looked 'horrible' and said there was a real danger Britain could be caught by economic 'contagion' from America. However, the chances of a cut to 4.75% as soon as next month appeared to be downplayed yesterday by Governor Mervyn King.

In its monthly housing market report today the Nationwide said falling demand from first time buyers, higher mortgage costs and tighter lending criteria had all contributed to the downturn.

Its chief economist Fionnuala Earley said: 'April's fall in prices continues the trend of the last six months and reflects the weakening sentiment in the market brought about by poorer affordability and tighter financial market conditions.'

However, she played down comparisons with the great crash from 1989 to the mid-90s, pointing out that the vast majority of borrowers are either on fixed rates - and therefore protected from higher mortgage costs - or on tracker and variable rates and benefitting from the cuts in the Bank of England base rates.

She said only around 1.8m borrowers, 15% of the total, were on cheap fixed and tracker deals due to expire this year.

Source: This Is Money