Page last updated at 17:05 GMT, Thursday, 30 October 2008

Low sales drive house prices down

Nationwide's chief economist, Fionnuala Earley, on the housing market

UK house prices continued falling in October and are now nearly 15% lower than a year ago, says the Nationwide.

The building society's latest survey says property prices fell by 1.4% this past month, pushing the annual rate of fall up from 12.4% to 14.6%.

This means the price of an average house was 158,872 - nearly 30,000 less than a year ago.

The Nationwide is the first major lender to report the state of the market in October.

Low sales

The lender said the price falls were being driven by the fall in sales, now at their lowest for 34 years.

House prices graph

"The number of completed house purchase transactions as a proportion of the total stock of mortgages is now at its lowest ever level since the series started in 1974," said the Nationwide's chief economist, Fionnuala Earley.

"A looming recession and continued financial market instability have uncomfortable implications for the housing and mortgage markets, and will undoubtedly affect the pace of recovery in house prices.

"However, the speed of the economic slowdown and the determination on the part of central banks to return stability to the financial markets does mean that interest rates are likely to continue to be cut sharply," she added.

The survey shows that house prices have now dropped for 12 consecutive months, although the monthly fall in October was slightly smaller than the previous three months.

According to Hometrack, it now takes significantly longer to sell a home than it did a year ago.

The average amount of time from the time of going on the market to going under offer rose from 7.4 weeks in October last year to 11.9 weeks now.

Asking prices have been falling but slower than other measures, the Nationwide said, with evidence that most sellers do not yet feel the need to reduce their prices dramatically for a quick sale.

Ms Earley told the BBC that urgency had been taken out of the market because buyers were expecting prices to fall further in the coming months.

Lending squeeze

The figures reveal that prices are on course to end the year at least 16% lower than at the start of 2008.

Jamie Brown and family
Months and months went by with hardly any interest. All the while my girlfriend was getting bigger and bigger
Home seller Jamie Brown

This reveals the speed of the downturn, as major lenders at the start of the year were predicting that UK house prices would remain flat in 2008.

Other figures suggest there will be no let-up, in the short term, in the dramatic slump in the property market.

Figures from the Bank of England on Wednesday showed that mortgages approved but not yet lent - a key indicator of short-term trends - were still down by two-thirds on the levels seen a year ago.

Meanwhile, the year-long crisis in the banking system has shown no signs of relief, despite the efforts of central banks and governments around the globe.

As a result, banks in the UK are still severely restricting their new mortgage lending, a trend which is likely to continue in the next few months, according to the Bank's recent Financial Stability Report.

Ms Earley said it would be clearer by the end of the year whether the help given to the banks would feed through to mortgage holders.

Average house price graph

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Telegraph £23000 what average house lost in a year - 14 hrs ago
Guardian Unlimited Bank warns of rising loan defaults as house prices fall - 16 hrs ago
Glasgow Herald Housing market downturn has crossed border - 19 hrs ago
Gulf Daily News UK house prices fall 1.7pc - 19 hrs ago
Sydney Morning HeraldUK house prices fall most since 1991 - 21 hrs ago
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