House prices 'biggest fall since 90s'

Last Modified: 08 Apr 2008
By: James Blake

New figures show that house prices have taken their biggest monthly fall since the 1990s house price crash.

Britain's biggest mortgage lender reveals a startling drop in house prices over the last month and says things are set to get worse.

At one estate agent in North London it's now common for offers to be made on homes - and then quickly withdrawn because buyers simply can't get a mortgage. At one agency they're advising sellers to reduce asking prices by at least five per cent.

The market's now in a vicious circle. Reports of house prices falling breeds nervousness and that makes things worse.

In just one month this fall of 2.5 per cent has knocked more than £5,000 off the average house price. It's the second biggest fall in the history of the Halifax index.

Beaten only by the crash in 1992 - when Britain was forced out of the Exchange Rate mechanism. Then interest rates were at 15 per cent and house repossessions were spiralling.

Now, this year, home repossessions have gone up by 20 per cent. And today the last 100 per cent mortgage offer - for first time buyers - has been withdrawn.

The latest figures show 75,000 homes are in danger of negative equity.

Negative Equity Threat

The ratio of mortgage to house values around the UK

Sighthill, Glasgow - 94.5 per cent
Glasgow (G5) - 92.2 per cent
London (SE18) - 91.1 per cent
Chorlton Road, Manchester - 91.1 per cent

Source: Experian

If you compare the proportion of mortgage with average house price. The two worst areas are in Glasgow. The next is in Greenwich - in South London And the fourth is in Manchester and they're concentrated in the big cities - areas of core Labour support.

The government's answer to all this: offer cash grants to help key workers get on the housing ladder. The other measures include 30,000 new homes on public sector land sites.

Halifax statement

Martin Ellis, Halifax chief economist, said: "This fall is continuing the pattern whereby the market is readjusting. Sellers are having to adjust the price they ask for their properties."

'This fall is continuing the pattern whereby the market is readjusting. Sellers are having to adjust the price they ask for their properties'
- Martin Ellis, Halifax chief economist

But he said the group still expected there to be only a "modest fall" in house prices for the whole of 2008.

He added that the most recent drops needed to be seen in the context of house price gains of the 51% during the past five years and rises of 171% during the past 10 years.

Mr Ellis said: "Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations.

"Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall."