U.K. House Prices Fall the Most in Three Years, Hometrack Says

U.K. House Prices Fall the Most in Three Years, Hometrack Says


Dec. 24 (Bloomberg) -- U.K. house prices fell the most in three years in December, and the threat of more declines may cause the property market to seize up in 2008, Hometrack Ltd. said.

The average cost of a home in England and Wales slipped for a third month, dropping 0.3 percent to 175,200 pounds ($348,350), the London-based research group said today. The number of property transactions will fall 17 percent and prices will rise just 1 percent next year, Hometrack forecast.

Bank of England policy makers said this month that a drop in house prices seemed ``more pronounced'' than expected as they cut their benchmark interest rate for the first time in two years. Record debt, higher mortgage costs and the property market's worst performance since 1995 have discouraged homebuyers.

``The second half of the year has seen a major reversal in confidence,'' Richard Donnell, director of research at Hometrack, said in a statement. ``Just as the financial markets have faced a liquidity squeeze, so the housing market is in danger of facing its own liquidity squeeze.''

Prices increased 3 percent from a year earlier, the least in 18 months, Hometrack said. The average selling time for a home rose to 8.3 weeks, the most since the survey of real-estate agents and surveyors began in 2001.

Mortgage lender HBOS Plc said Dec. 5 that home values fell for a third month in November, the worst streak in 12 years. Estate agents and surveyors became the most pessimistic about house prices since at least 1998 last month, the Royal Institution of Chartered Surveyors said Dec. 13.

Lack of Homes

The number of property transactions will fall because uncertainty among sellers about the health of the market will cause a ``major lack'' of homes for sale in the first quarter, Donnell said.

``This will act as a support to prices, while also leading to greater price volatility in those markets where there is the greatest lack of supply,'' he said.

Citigroup Inc. has been less optimistic, forecasting that a ``toxic mix'' of overvaluation, record debt levels and prohibitive mortgage costs will probably lead to further price declines.

Britons face higher loan costs after contagion from the U.S. subprime-mortgage collapse froze lending between banks. That also led to a run on the deposits of mortgage lender Northern Rock Plc in September, the first on a British bank in more than a century.

Average Rate

The average rate offered by lenders on a mortgage for 95 percent of the price of a property, fixed for 24 months, increased to 6.44 percent from 6.42 percent in October, the Bank of England said Dec. 11. Total outstanding consumer debt is 1.4 trillion pounds.

The central bank cut the benchmark rate by a quarter point to 5.5 percent on Dec. 6 on concern about the prospects for economic growth. That may nevertheless not be enough to lure buyers back into the market, said Hometrack.

``Levels of market activity are likely to remain subdued over the course of 2008, especially over the first half of the year,'' Donnell said. ``Lower interest rates and continued growth in household incomes will help to ease affordability pressures but it is a trend that will need to run for a good 12 to 18 months.''


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