House prices falling at record annual rate

House prices dropped by 2.3 per cent during December, pushing the annual rate at which values are falling to a new record high, figures showed today.

Homes in the UK lost 10.2 per cent of their value during the 12 months to the end of December, the first time the Department for Communities and Local Government has recorded a double-digit drop since it first started collecting the data in 2003.

The steep fall reported during December contrasts with more recent figures on the property market, which suggest buyers may be beginning to return.

Britain's biggest mortgage lender, Halifax, said house prices rose by 1.9 per cent during January, although economists cautioned against reading too much into one month's figures.

The Royal Institution of Chartered Surveyors (RICS) and the National Association of Estate Agents have both also reported increased interest from potential buyers following interest rate cuts and house price falls.

The DCLG figures tend to lag behind other data as they are based on completion prices, while other indexes report on house prices earlier on in the buying process.

They are also a month behind other indexes, reporting figures for December as opposed to January.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "While latest survey evidence indicates that buyer inquiries are now picking up significantly as people are attracted by lower house prices and the Bank of England slashing interest rates, we are sceptical that this will lead to a marked up in actual sales any time soon.

"We certainly expect house prices to continue to fall for some considerable time to come."

The Government figures showed a doubling in the quarterly rate at which prices are falling, with homes losing 6.4 per cent of their value during the three months to the end of December, compared with a drop of 3 per cent during the third quarter of the year.

December's price fall was driven by a steep drop in the average price of a detached home, which fell by 4.1 per cent during the month, while flats lost 2.4 per cent of their value and the price of bungalows and semi-detached homes eased by 2.3 per cent and 2 per cent respectively.

Terraced houses fared slightly better, with their value dropping by a more moderate 0.8 per cent.

Annual house price falls are now in double digits in all but four regions of the country, with the rate at which prices are dropping accelerating in all areas.

Scotland has seen the smallest price drops, with the average cost of a home falling by 6 per cent during the year to the end of December, followed by a drop of 8.9 per cent in the North East.

The biggest drops have been reported in Northern Ireland, where homes have lost 17.9 per cent of their value during the past year, while in the East Midlands and South East prices have fallen by 11.5 per cent and 11.3 per cent respectively.

The average property in the UK now costs £195,317, ranging from £136,057 in the North East to £304,421 in London.

First-time buyers are paying an average of 13 per cent less for a home than they were in December 2007, while the price paid by homeowners has dropped by 9.2 per cent.

RICS released research today suggesting that homeowners are returning to the property market in the hope of picking up a bargain following recent price falls.

Three-quarters of surveyors said homeowners were driving a jump in inquiries, reported during the past three months, while 38 per cent have seen a pick-up in interest from investors.

But first-time buyers are continuing to be frozen out of the market as lenders demand high deposits, with only 23 per cent of surveyors reporting a rise in interest from people taking their first step on to the property ladder.

Seven out of 10 surveyors think lower house prices are responsible for the growth in interest, while 48 per cent believe buyers think the bottom of the market is now in sight.

The group said that while the Halifax and Nationwide house price indexes showed a fall of around 20 per cent since house prices peaked in 2007, many surveyors think the drop in transaction prices is closer to 30 per cent.

Ed Stansfield, property economist at Capital Economics, said: "The CLG house price index for December offers no evidence that we are approaching a floor in average house prices.

"Admittedly, it is one of the less timely measures. But, as unemployment continues to rise and mortgage credit remains rationed, we think that all regions will see substantial further house price falls during 2009.

A CLG spokesman said: "We are determined to ensure stability in the housing market and build homeowner confidence.

"We are working to unlock credit flows and taking action to support first-time buyers aspiring to enter the market by increasing opportunities to buy a share of a home.

"We are also bringing forward funding to deliver more affordable homes sooner which will also support the house building industry to weather the current climate."