House prices down 2.2% in October

House prices are still falling fast, according to lenders

House prices fell by another 2.2% in October, says the Halifax, pushing the drop in house prices to 13.7% over the past year.

The latest fall means that the average UK home now costs £168,176, nearly £30,000 less than a year ago.

The Halifax said this meant prices were now back to the level of October 2005.

The lender said conditions in the market remained "challenging" because of economic conditions and the dearth of mortgages.

The Halifax's latest survey of house prices chimes closely with that of its big rival the Nationwide building society, which last week said prices had fallen by 14.6% in the past year.

When simply comparing the average price in October with the average price a year ago, the Halifax survey suggests that prices are down by 15%.

But the Halifax argues that this figure can be distorted by month-to-month fluctuations, and that the better method is to compare the average price for the past three months with the average price for the same period a year ago, which produces its current estimate of a 13.7% annual fall.

Signs of hope

Despite the continuing falls in house prices, the lender's chief economist, Martin Ellis, said there were signs that the market was starting to stabilise and that the affordability of homes was "improving significantly".

The likelihood is that the picture will continue to deteriorate in the near term Simon Rubinsohn, Rics

"The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years," he said.

"We expect a further improvement in the ratio over the coming months.

"The number of mortgages approved to finance house purchase was broadly unchanged in September for a third successive month," he added.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), took a different view.

"Prices are now falling at a faster pace than in the recession of the early 90s and, with mortgage finance still in short supply, the likelihood is that the picture will continue to deteriorate in the near term.

"Interest rate cuts by the Bank of England should gradually provide some support but the key issue is the extent to which these reductions are passed on to High Street lending rates.

"Ominously some lenders are taking advantage of the current environment to rebuild margins, which will inevitably lessen the beneficial impact of the bank's actions," he pointed out.

Mortgage drought

Mortgage costs for some borrowers will come down if, as expected, the Bank of England announces a significant cut to its Bank Rate at midday on Thursday.

But, as the Council of Mortgage Lenders (CML) pointed out on Tuesday, the main barrier to people taking out home loans is not the cost of servicing a mortgage, but the dramatically increased size of the deposits that are now required by nearly all lenders.

Since the start of the credit crunch and the international financial crisis in the summer of 2007, lenders have reined in their lending, preferring to lend only to those borrowers with significant equity in their homes or who are able to put down large sums as deposits when buying for the first time.

The Bank of England recently reported that banks and building societies expect to restrict their lending even more in the coming months.

Not only have 100%-mortgages disappeared but so have the once traditional 95%-mortgages, and most deals currently on offer from lenders typically require a deposit of at least 10% or 15%.