UK house prices posted the biggest annual decline since at least 2002 as banks choked off mortgage lending, deepening London's property slump, Rightmove Plc said.
The average asking price for a home fell 4.8 per cent in August from a year earlier to £229,816 ($426,929), the biggest yearly drop since Rightmove began measuring home values six years ago. Britain's most-used property Web site also said today that prices dropped 2.3 per cent on the month, the most since December, led by London.
“The lack of mortgage finance is central to the problem,” Miles Shipside, commercial director of Rightmove, said in the statement. “London, in particular, appears to be having its own special summer sale, with over £21,000 off in a month.”
Bank of England Governor Mervyn King said last week that the housing market faces “a significant adjustment” as banks ration loans for homebuyers. Falling prices may exacerbate the economic slowdown as the threat of a recession looms and unemployment rises the most in 16 years.
The pound traded at $1.8671 against the dollar at 10:05 am in London, from 1.8623 yesterday, the currency's first gain in 12 days. Against the euro, it was at 78.90 pence.
Prices in London fell 5.3 per cent on the month and 3.8 per cent from a year earlier. Each of the 32 districts in the capital showed a decline, and the biggest drop was in the southwest area of Wandsworth, where values fell 7.9 per cent. Hackney, in east London, was the best performer, with a 0.6 per cent decline.
Market ‘Standstill’: The stock of unsold property per real estate agent rose for a seventh month to 78, from 77 in July. The number of transactions may reach the lowest since 1959, Rightmove said.
Banks have starved the market of loans after more than $500 billion in losses and writedowns worldwide from the US mortgage market collapse. UK mortgage approvals fell to the lowest since at least 1999 in June, the Bank of England said July 29. The Royal Institution of Chartered Surveyors said last week that the housing market is at a “virtual standstill.”
King said on Aug. 13 that “there is a feeling of chill in the economic air” and that “the British economy is going through a difficult and painful adjustment” that “cannot be avoided.”
Weakness in the housing market may “amplify” the impact of the lending squeeze on household spending, the central bank said last week. Retail sales probably fell for a second month in July, dropping 0.2 per cent, according to the median forecast of 32 economists in a Bloomberg News survey. The government's statistics office will release that data on August 21.
Company Confidence: Britain's gross domestic product will either stagnate or contract in the next two or three quarters, meaning the economy may fall into a recession, the British Chambers of Commerce said in forecasts released today.
Confidence on business prospects fell to the lowest level in at least 6 years, according to a survey of more than 200 companies released by Lloyds TSB Group Plc today. The index of sentiment on the next 12 months fell to 22 in July, the lowest since the survey began in 2002, from 32 in June.
The economy probably grew 0.1 per cent in the second quarter, less than previously estimated and matching the slowest pace since the aftermath of the last recession in 1992, the median forecast of 34 economists surveyed by Bloomberg News shows. The statistics office will publish the figures on Aug. 22.
The central bank kept its benchmark interest rate at 5 per cent on Aug 7 for a fourth month, as policy makers weighed the risk of accelerating inflation against the threat of a recession. Minutes of their meeting, showing how the panel voted, will be released on Aug 20.
The ongoing fall in house prices “is set to become increasingly painful for consumers over the next year,” Lena Komileva, an economist at Tullett Prebon in London, said in an e- mailed note to clients today.
