Halifax, the UK’s biggest mortgage lender, says house price fallswill not hit double digits in 2008 despite the continuing housing market slowdown.
The bank’s latest house price figures show a monthly fall of 1.3% in April and an annual fall of 0.9%. This follows figures from Nationwide revealing house prices are now 1% lower than this time last year. The building society’s housing market index shows prices fell for the sixth consecutive month in April, bringing the cost of an average home to £178,555 - £1,759 lower than this time last year. It is also the first reported year-on-year fall in prices since March 1996.
Martin Ellis, chief economist at Halifax, says: “We expect a mid single digit percentage decline in UK house prices this year. There will be regional variations - some areas of the country are likely to record modest price rises whilst other parts are expected to see falls above the national average.”
Scotland is one area where Ellis believes prices will rise modestly in 2008 while the Midlands and Wales are likely to see falls above the national average.
The figures follow a forecast for falls of 30% over the next two to three years by David Blanchflower, a member of the Bank of England’s Monetary Policy Committee.
Blanchflower - who is well known for strongly supporting interest rate cuts - says: “A correction of approximately one third in house prices does not seem implausible in the UK over the period of two to three years if house price to earnings ratios are to be restored to more sustainable levels… I am not suggesting that such a drop will necessarily occur but it may.
“Cutting interest rates now may help to prevent such a dramatic fall.”
Nationwide says more than five million borrowers have directly benefited from interest rate cuts so far - and it predicts that the MPC will have to make more cuts to help bolster the weakening economy.
Fionnuala Earley, Nationwide's chief economist, says: “As the economy slows, inflationary pressures should moderate over time and allow the Bank of England to make additional interest rate cuts.
"However, the risk that the current strength of oil and food prices could feed into wages means that the MPC will probably prefer to cut rates at a more gradual pace than homeowners might prefer.”
Earley adds that although some mortgage borrowers are feeling the effects of higher mortgage rates, around 85% of borrowers will be unaffected or will benefit from interest rate cuts: “This is good news for the overall stability of the housing market and is a significant factor that differentiates the housing market of today from that of the late 1980s and early 1990s.”
Falling house prices are likely to prompt many people to cut down on their spending. Recent research from the European Commission shows consumer confidence is at its lowest level since November 1992, with people feeling less confident about their personal financial situation and the general economic situation than they have done for over 10 years.
Rachael Joy, from GfK NOP, which carried out the research, says: “With the news dominated by stories of recession, the credit crunch, housing market falls, and future petrol and food price increases, it will take more than a quarter point reduction in interest rates to alleviate the current gloomy mood of the UK consumer.”