House prices fell for the third consecutive month in January, strengthening the pressure on the Bank of England to cut interest rates next week.
Figures from Nationwide, the UK’s biggest building society, showed that the average cost of a home dipped by 0.1 per cent to £180,473. This price was 4.2 per cent higher than in January 2007, but this was the slowest annual growth since 2005.
Martin Gahbauer, Nationwide’s senior economist, said: “This undoubtedly signals a continued cooling in annual house price inflation during the months ahead.”
Although falling prices would usually entice buyers, the Bank of England said on Wednesday that the number of mortgage approvals for home purchasers fell to its lowest level since the Bank’s records began in 1999. A combination of earlier house price rises and stricter mortgage lending conditions has pushed up costs for homebuyers. Some mortgage lenders, stung by the credit crunch, have been demanding bigger deposits and charging higher rates on their home loans.
Mr Gahbauer said first-time buyers “found it increasingly difficult to raise the deposits needed to climb on to the housing ladder”. However, some experts said that declining house prices might not be enough to perk up the property market.
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David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, said: “With activity weak, the market is becoming looser and tilting the balance of power away from sellers and towards buyers. However, conditions in the mortgage market need to improve if the thousands of would-be first-time buyers out there are going to be able to get their foot on the ladder in coming months.”
Howard Archer, of Global Insight, said the housing market had started 2008 as it ended 2007, squeezed by increased affordability pressures and tightening lending practices. “This adds to the already intense pressure on the Bank of England to cut interest rates by at least a further 25 basis points to 5.25 per cent next week.”
However, there was evidence that consumers are feeling less negative about finances. Consumer confidence rose to minus 13 from a 12-year low of minus 14 in December, a survey by GfK NOP showed.
But Rachael Joy, of GfK NOP said: “Consumer confidence continues to be weak. Fear of recession continues to see consumers reluctant to make big-ticket purchases.”