Sharpest fall in UK home prices in 8 months

Average cost falls 2.2% in Aug as banks ration mortgages on lack of funds

(LONDON) UK home sellers lowered asking prices in August by the most in eight months as banks kept up the squeeze on credit, Rightmove plc said.

The average cost of a home fell 2.2 per cent to £222,762 (S$532,225) after gaining 0.6 per cent in July, the owner of the UK's biggest residential property website said yesterday in a statement. Prices in London dropped 3.8 per cent.

'In spite of pent-up demand, the market and pricing is boxed in by restrictive lending criteria put in place to ration mortgages given the lack of funds available to lenders,' Miles Shipside, Rightmove's commercial director, said in the statement.

Bank of England governor Mervyn King said last Wednesday that the world remains in 'deep recession' and that banks may need to raise more capital to rebuild their balance sheets. Policy makers this month voted to add £50 billion of newly printed money to its bond-buying programme to cement Britain's recovery from the worst recession in a generation.

The pound fell against the US dollar by the most in a week after the report. The UK currency dropped 1.1 per cent to US$1.6347 as of 9.50am yesterday in London.

The number of new homes on the market was 48 per cent below the level preceding the financial crisis, Rightmove said. The price demanded by sellers fell the most in the East Midlands, where it dropped 9 per cent.

In London, values in Haringey declined the most, falling 7.6 per cent, followed by a 6.4 per cent drop in Merton. Prices in the fashionable district of Islington fell 6.1 per cent.

Buyers' optimism improved, with three-quarters of people moving home, saying that property prices won't fall in the next 12 months, Rightmove said.

Bank of England policy maker Andrew Sentance wrote in an article for the Sunday Times that 'the housing market appears to be turning'. He predicted that Britain's economy will return to growth in the second half of this year.

While data this month have added to evidence that Britain's economy is heading for recovery, rising joblessness may continue to damp people's ability to buy homes. Unemployment climbed to the highest level in 14 years in the second quarter, the Office for National Statistics said last Wednesday.

Consumers, with record debts of £1.5 trillion, are also struggling with existing mortgage payments. Bradford & Bingley plc, the biggest lender to UK landlords before it was taken over by the government, said last week that the proportion of mortgages in arrears more than doubled in the first half.

Most recent reports, including Rightmove's, have suggested stabilisation in house prices. - Bloomberg

Source: Business Times, 18 Aug 2009