Mortgage shortage and looming Budget cuts drive slump in house prices

Published 15th Mar 2011

* Average UK home now costs £208,552

The slump in mortgage lending and pressure on household finances has continued to push down house prices, figures show.

Property prices fell by 1.4 per cent during January, under pressure from Government spending cuts and banks' unwillingness to lend to would-be buyers.

The drop left the average cost of a home just 0.5 per cent higher than it was in January last year at £208,552, according to the Department for Communities and Local Government.

It was also the eighth consecutive month during which the annual rate of house price inflation has fallen - and the latest rise was considerably lower than the 3.8 per cent jump seen in December.

The three-month-on-three-month change, which is generally seen as a smoother indicator of market trends, also pointed to an acceleration in the rate at which prices are falling.

Property prices dropped by 0.4 per cent during the three months to the end of January, compared with a 0.2 per cent decline in the quarter to the end of October.

House prices are coming under pressure as potential buyers sit on their hands as the looming Government spending cuts and economic uncertainty put further strain on already stretched household budgets.

Those who do want to press ahead with a purchase are continuing to struggle to raise the mortgage finance they need.

Last week the Council of Mortgage Lenders revealed just 28,500 loans were advanced to people buying a property during January, the lowest level since February 2009 and 29 per cent down on December's figure.

Howard Archer, chief UK and European economist at IHS Global Insight, said: 'The housing market will be pressurised over the coming months by high and likely-to-rise unemployment, negative real income growth, the increasing fiscal squeeze, very low consumer confidence, and ongoing difficulties in getting a mortgage, particularly for first-time buyers.

'We suspect that house prices will fall by around 5 per cent in 2011 and end up losing around 10 per cent from the peak levels seen in the first half of 2010.'

Annual house price growth is now negative in seven regions of the UK, with Northern Ireland continuing to see the biggest year-on-year drop of 14.1 per cent, followed by Yorkshire and Humberside at 4.6 per cent, and Scotland and the West Midlands, which both recorded a 3.2 per cent decline.

Growth was strongest in the East and London, with prices 4 per cent and 3.7 per cent higher respectively than they were in January last year.

But the recent price falls seem to have done little to help struggling first-time buyers get on to the property ladder, with the average cost of a home bought by this group increasing by 1.5 per cent during the past year, while the price of properties purchased by owner-occupiers has edged up by just 0.1 per cent.

There has also been an 8.6 per cent jump in the cost of new homes during the 12 months to the end of January, although the figure may have been distorted by the low volume of new-build properties that came on to the market during the period.

The number of new properties built fell to its lowest peacetime level since 1923 during 2010.

Source: ' ThisIsMoney '

View All Latest News