House prices drop furthest since 1991
The figures confirm the view that the UK’s once frothy housing market has now well and truly come off the boil.
The Nationwide house price index shows that property prices in England and Wales fell to a three-year low in July, taking the average price of a house to £169,316 - almost £15,000 lower than the same time last year.
Chief economist at the Nationwide, Fionnuala Earley, puts the fall down to a combination of a lack of mortgages and sellers who are reluctant to accept lower offers. "Estate agents are reporting that up to 40% of transactions are falling through and the average number of sales per surveyor is at its lowest ever level," she says. "The weakening economy and poor housing market sentiment do not suggest that the market will recover quickly."
The high street has already seen customers tightening their belts as a result of soaring food and fuel bills, and and according to pollsters GFK NOP, consumer morale is at a record low. Its consumer confidence index fell by five points in July to -39, the lowst reading since the survey began in 1974. As such, Earley believes that as inflation is well above target and expected to continue to rise this year, the risk of a recession in the UK is now well on the cards.
However, she added that although economic conditions are not looking good, there are some encouraging signs for the housing market. As most analysts predict that the Bank of England will leave interest rates on hold at 5%, this has filtered through to the swaps market, which has allowed the price of fixed-rate mortgages to come down.
"As the cost of mortgages begins to come down, activity in the housing market could be bolstered and confidence could be restored. If oil prices continue to fall the possibility of earlier cuts in interest rates would also be good news for borrowers," she says.
The Nationwide’s study caps a bad week for homeowners. Earlier this week the Bank of England reported that the number of new mortgages approved for house purchases in June was at its lowest level since 1999 - only 36,000 mortgages were approved in the month, down from the 41,000 in May.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.