House prices falling by £200 every day: Economists warn the property market is 'in reverse'

Published 08th Oct 2010

House prices dropped by £200 a day last month – the fastest fall since records began in 1983.

More than £6,000 was wiped off the value of a typical home in September, according to figures from Britain’s biggest mortgage lender. The average house price fell 3.6 per cent to £162,096, meaning that millions who have bought a home since the market peaked in 2007 paid more for it than it is currently worth. One economist warned that the figures from Halifax, part of Lloyds Banking Group, showed the housing market is ‘in reverse’.

However, there was some positive news for mortgage holders yesterday as the Bank of England kept the base rate at 0.5 per cent.

It has stayed at this level since March 2009, the longest ‘freeze’ since it was held at 2 per cent between 1939 and 1951. But the fall in house prices means more homeowners will be in negative equity, where their mortgage is bigger than the value of their property.

Howard Archer, chief UK economist at the consultancy IHS Global Insight, described the Halifax figures as ‘an absolute shocker’ and said: ‘It will undoubtedly raise fears of a housing market crash.’

He warned that the drop is ‘highly likely’ to overstate the weakness of the market, but added: ‘There seems little doubt that the housing market is now in reverse.’

It is the size of last month’s fall which is so startling. Since January, prices have fallen in most months, but the drops have been much smaller – between 0.1 and 0.7 per cent. Before September, the largest monthly fall, of 3 per cent, occurred back in September 1992.

The figures were revealed the day after the International Monetary Fund warned Britain was facing a house price ‘double dip’.

Martin Ellis, housing economist at the Halifax, said: ‘Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market.

‘These will all be constraints on the market, dampening house prices.’

Paul Diggle, property economist at the consultancy Capital Economics, predicts prices will fall by 5 per cent this year, followed by drops of 10 per cent in both 2011 and 2012.

But estate agents insisted yesterday that the fall, which is based on Halifax’s own data of its mortgage approvals last month, has been exaggerated.

For example, prices in the capital have been rising at rates of up to 15 per cent over the last year.

Peter Rollings, managing director of Marsh and Parsons, said: ‘Large areas of London, particularly Kensington, Chelsea, Knightsbridge and Holland Park, attract many foreign buyers and UK residents in no need of a mortgage.’

Source: ' ThisIsMoney '

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