U.K. December House Prices Fall the Most Since 1991

Wednesday, 07 January, 2009

U.K. house prices had the biggest drop since at least 1991 last year and consumer confidence slumped as banks rationed credit and homebuyers shunned the property market, Nationwide Building Society said.

The price of a home declined an annual 15.9 percent in December to 153,048 pounds ($223,235), slipping 2.5 percent from the previous month, the mortgage lender said in a statement today. Nationwide said “highly volatile” conditions make it difficult to give a forecast for house prices in 2009.

The Bank of England will probably cut the benchmark interest rate further this week after reducing it in December to 2 percent, the lowest since 1951, economists say. Prime Minister Gordon Brown also plans to unveil new measures to bolster the economy as it endures its first recession since 1991.

“We did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “Prices have further to fall before significant numbers of buyers will be willing to return to the market.”

On a quarterly basis, house prices fell 14.7 percent in the final three months of 2008 from a year earlier, Nationwide said. The biggest decline was in Northern Ireland, where home values dropped 34 percent.

Loan Squeeze

U.K. mortgage approvals dropped to the lowest level since at least 1999 in November and banks plan to curtailed loans further across the economy, the Bank of England said on Jan. 2.

Nationwide also released its monthly gauge of consumer confidence today, showing sentiment among shoppers fell to the weakest level since the report began in 2004. The index dropped four points to 47.

The economy contracted 0.6 percent in the third quarter and consumer spending dropped the most since 1995. Unemployment rose at the fastest pace since 1991 in November.

U.K. services from banks to airlines contracted an eighth month in December, the Chartered Institute of Purchasing and Supply said today. An index of the industries was at 40.2 last month, close to the lowest since at least 1996.

The U.K. central bank will probably cut the benchmark interest rate by half a point to 1.5 percent on Jan. 8, according to the median forecast of 57 economists in a Bloomberg News survey.

Source: http://www.bloomberg.com/