Halifax data shows house prices down 2% last month

The latest index from Britain's biggest mortgage lender shows that UK house prices sank by 2% in June.

Halifax's house price index shows the drop meant that prices were 6.1% lower than a year ago, with the average home now costing £180,344. It said that average house prices had sunk to the same level as in August 2006.

Despite this, strong employment levels and low interest rates meant that housing values retained firm foundations. A squeeze on spending power, rapid house price growth in recent years and the lack of availability of mortgages were behind the latest monthly fall, said Halifax chief economist Martin Ellis.

He said: "These factors have curbed housing demand. There has been a slight fall in 'real' earnings over the past year."

Recently, the lender revised its forecast, saying that UK house prices are set to fall by 9% this year after previously stating in February that the market would remain flat this year.

Nationwide said that house prices fell by 0.9% on average last month in its latest survey, with the average home costing 6.3% less than a year ago.

Mr Ellis said: "We expect the UK economy to slow further in 2008, with a further rise in unemployment and low interest rates, accepting that inflationary pressures will restrict the MPC's ability to reduce base rates below current levels."

The annual rate at which house prices fell was at its greatest level since March 1993, the Halifax said. But Mr Ellis stressed that average UK house prices remained 2% higher than two years ago, more than 10% higher than in June 2005 and almost 40% above that in June 2003.

However, some analysts were saw a more dismal outlook from the data. Capital Economics, for example, said that it did nothing to dilute concerns that the housing market is in the initial stages of an extremely sharp correction. It said that the dire news from the housing sector in recent weeks suggests the worst is yet to come, and predicts falls of 15% this year, and a total of 35% over the next three.

Howard Archer, chief UK and European Economist at Global Insight, said: "The latest data on the housing market continue to be very worrying, and there appears to be no let up in the current downward spiral."

The Halifax said that in 2007, before the full force of the credit crunch cut the availability of mortgages, buyers were putting down larger deposits.

Around 56% of new borrowers put down a deposit of more than 10% in 1989 and 1990, but that figure had risen to 82% of all new borrowers during the final quarter of 2007.

The Halifax estimated that 300,000 first-time buyers entered the market in 2007, the lowest number since 1980.

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2008-07-10 11:52:55 © Moneyextra.com