Biggest fall in house prices for 12 years

Friday ,November 30, 2007

The strongest signs yet that the property market is starting to fall emerged yesterday as figures showed both house prices and mortgage lending dropped sharply last month.

· Telegraph Property

Nationwide Building Society said the average cost of a home fell by 0.8 per cent during November, the first time it has recorded a drop since February last year and the biggest monthly fall for 12 years.

At the same time figures from the Bank of England showed that during October, the number of mortgages approved for people buying a home fell to its lowest level for three years.

Only 88,000 home loans were approved for people moving during the month, the most subdued figure since February 2005 and well down on the recent monthly average of 109,000.

Economists pointed out that the figures came after a series of recent data, all of which suggest the decade-long housing boom has come to an end.

Seema Shah, a property economist at Capital Economics, said: "Clearly, there is a risk of over-interpreting one month's data. However, with Hometrack, Rightmove, RICS, Halifax, and now Nationwide all reporting house price falls during the last two months, there is also a clear risk of underplaying the significance of the data."

Her company is predicting that house prices will fall by three per cent next year - the first time prices will have fallen for 13 years.

The housing market has been hit by five interest rate rises since August last year as well as the global credit crunch.

Both have conspired to make mortgages more expensive and home buyers more nervous about committing large sums towards a purchase.

These factors have come after a surge in prices in recent years, which have made properties ever more expensive, especially for first time buyers.

Howard Archer, the chief UK economist at Global Insight, said: "It is becoming increasingly apparent that housing market activity and prices are now being significantly undermined by tighter lending practices and the heightened affordability pressure on house buyers coming from higher interest rates, elevated house prices and muted real disposable income growth."

Squeeze hits personal loans

The number of personal loans available fell by almost 10 per cent during November as a further two lenders pulled out of the market.

The crisis-hit bank Northern Rock has announced that it will no longer offer new loans through its Eskimo Loans brand, although it will continue to advance Northern Rock branded ones.

The Hanley Economic Building Society has also decided to pull out of the market, according to the financial information provider Moneyfacts.co.uk.

These groups join three other providers who left the market this month.

Source: http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/11/30/nprices130.xml