U.K. house values fell by the most in at least seven years in July and the property slump will continue for months, Hometrack Ltd. said.
The average cost of a residential property in England and Wales slipped 4.4 percent from a year earlier to 168,500 pounds ($336,000), the London-based research company said today in a statement. That's the biggest annual drop since the index started seven years ago. Prices fell 1.2 percent from June.
“With no immediate end in sight to the current uncertainty, activity levels are likely to remain suppressed with prices remaining under pressure into the autumn,'' said Richard Donnell, director of research at Hometrack, in an e-mailed statement. Prices “are now back to levels last seen in October 2006.''
Banks have raised mortgage rates and limited the supply of credit, reversing a decade-long property boom in which prices tripled. The Bank of England kept the benchmark interest rate at 5 percent this month on concerns that inflation is accelerating even as the economy risks slipping into a recession.
The majority of house-price declines were in southern England. Demand for housing has declined 20 percent in the past three months, Hometrack said.
Central bank policy makers said this month that the housing downturn has “gathered momentum,'' minutes of the July 7 meeting showed last week. The Monetary Policy Committee split three ways in its interest-rate vote. Timothy Besley favored an increase to help stem the fastest in inflation in a decade and David Blanchflower supported a reduction to ease an economic slowdown fast cash payday loan.
Slower Growth
Britain's economy grew 0.2 percent in the second quarter, matching the slowest pace since 2001. Unemployment jumped the most in June since the aftermath of the last recession in 1992 as the economic slowdown forced homebuilders and banks to cut jobs.
Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $469 billion in writedowns and losses. U.K. mortgage approvals slumped in June to the lowest level in at least a decade, according to the British Bankers' Association.
Demand for farmland also declined for the first time since 2005 in the first half of the year, the Royal Institution of Charted Surveyors said in a separate report today.
The deteriorating economic outlook has contributed to the pound's 12 percent decline against a currency basket of Britain's main trading partners, making exports cheaper for overseas buyers.
The weaker pound “won't prevent the credit crunch, a major housing downturn and a sharp retrenchment in corporate spending from sending the economy into recession,'' Roger Bootle, chief economic adviser to Deloitte & Touche LLP in London, wrote in a report published yesterday.
Source