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Last Updated: Thursday, 29 November 2007, 11:08 GMT
UK property market 'turning down'
Woman looking in estate agent's window
November's fall in house prices is the largest since June 1995.
UK house prices saw their biggest fall in 12 years during November, mortgage lender Nationwide has said.

The firm's data suggests the cost of an average home slid by 0.8% from a month earlier - the first drop in price seen since February last year.

The annual rate of house price inflation now stands at 6.9%, down from 9.7% reported in October.

At the same time, the Bank of England said the number of mortgage approvals fell to a near three-year low.

According to the Bank's latest report, 88,000 new mortgages for home buyers were approved in October, 12% lower than in September and down 31% from October a year ago.

Downturn

Mortgage approvals are a key indicator of near-term activity in the housing market, and alongside those from the Nationwide, point to a rapid downturn in the market, analysts said.

The data "confirms that the housing market is indeed cooling," Nationwide's chief economist Fionnuala Earley said.

"Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market," she added.

Graph of Nationwide and Halifax house price indices

The 0.8% slide in prices seen in November is the biggest reported by the Nationwide since June 1995.

According to the building society's calculations, the cost of the average property in the UK is now 186,044, nearly 12,000 more than this time last year.

However, the Council of Mortgage Lenders (CML) has suggested that the downturn may not be as sharp as it seemed, and that it was being amplified by problems in the global money markets.

Banks are having to pay more to borrow money, and as a result are cutting back on the amount of cash they lend and are asking for higher rates of return when they do approve loans.

Some analysts have called for more cash to be pumped into the money markets to help banks fund their business.

"We would like the government and the Bank of England to consider how best to unblock the funding log-jam that some UK lenders are experiencing, so that they can continue to fully meet consumer demand," said the CML's director general Michael Coogan.

'Recession unlikely'

All indicators now suggest that house sales are going through a sharp downturn, while house price inflation is slowing quickly.

We still expect.... lower levels of activity rather than outright house price declines
Simon Rubinsohn, Rics

As well as a slump in mortgage approvals, surveyors have reported a continuing drop in enquiries from would-be buyers.

"However, we still expect most of the fall-out from the current round of turmoil in credit markets to be felt in terms of lower levels of activity rather than outright house price declines," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).

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Even parts of the country that seemed immune from the general deflating of the market have now been affected.

This week, the Land Registry reported that house prices in England and Wales were rising at a rate of 8.1%.

Crucially, it suggested that prices in London, which until now had been shooting ahead of the national average, had started to slow as well.

However Ms Earley said an outright recession in the property market was unlikely.

"With interest rates on the way down and the continued issue of undersupply of housing in the UK market, the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest," she said.



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