House prices fall for first time in nine months

Published 26th Feb 2010

Recent end to the stamp duty holiday and wintry weather putting off would-be buyers according to Nationwide


House prices fell by 1% in February bringing to an end nine months of rising prices, figures from the UK's largest building society showed today.

Nationwide said the sharp drop could be a result of the wintry weather and the recent end to the stamp duty holiday on homes costing less than £175,000 putting off would-be buyers.

The fall, the first since last April, brought the average in the cost of buying a home in the UK down to £161,320, from £163,481 in January. However, prices are now 9.2% higher than in February last year, when the market reached a trough.

The three month rate of inflation, which is regarded as a better indicator of what is happening in the market that a single month's figures, showed prices were up 1.6%, compared with 2% in January, but the society said it was too early to say if February's slowdown was the start of a trend.

Recent figures from the Council of Mortgage Lenders showed a 32% drop in gross lending in January, while this week the British Bankers Association said its members had seen the number of house purchase loans fall sharply over the month.

Both groups suggested that the government's decision to end the temporary stamp duty holiday on homes up to £175,000 at the start of last year had led to a rush to buy in December and a slowdown in interest at the start of 2010.

Nationwide said this fall in demand seemed to have had an impact on house prices this month.

Nationwide's chief economist, Martin Gahbauer, said: "There is evidence from a range of indicators that the market may have lost momentum in early 2010 as the stamp duty holiday ended and house hunters were obstructed by the icy weather.

"New buyer enquiries dropped sharply in the New Year and there was also an associated drop in the number of new mortgages taken out by homebuyers in January. This drop in demand seems to have fed into agreed prices during February."

He added: "At this stage, it is difficult to gauge how much of the drop in housing activity is attributable to one-off factors and therefore whether February's fall in prices is just a temporary blip or the start of a new trend."

News that the market may be stalling will be welcomed by would-be buyers who have seen the average cost of a home in the UK rise by almost £14,000 since this time last year, according to Nationwide's index.

The turnaround in house prices, which came at the heart of the recession as many homeowners were losing their jobs, took many commentators by surprise, and many believe it was driven by a lack of homes for sale, rather than an increase in demand for properties.

The removal of the temporary stamp duty threshold, which means that all homes selling for £125,000 or more are now subject to tax at 1%, may have dented demand to such an extent that even without more properties coming on to the market, the market has tipped in favour of buyers.

Howard Archer, chief UK economist at IHS Global Insight said he believed house prices would "suffer a significant correction in 2010 and will probably be no better than flat over the year".

Archer said recent house prices rises had been "out of kilter" with the overall economic fundamentals.

He added: "If properties remain scarce for some considerable time to come, then house prices will be supported to some extent by this. It will increase the risk, though, that an eventual correction in house prices will be appreciable."

Source: ' Guardian '

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