House prices fell for an eighth successive month in June and have registered their worst annual rate of decline since December 1992.
The figures show that Britain is following the US into a widespread and possibly protracted housing recession, with the average value of a British home slipping by almost 1 per cent last month, to £172,415. According to the Nationwide Building Society, prices are 7.3 per cent off the peak they reached last year, a decline in wealth of £13,500 for the typical family.
There was some comfort for home-owners in the fact that the rate of decline in June seems to have moderated – a 0.9 per cent monthly fall representing an improvement on the massive 2.5 per cent drop in May, but analysts cautioned that the monthly figures were volatile. The general picture is of a housing market that is falling as fast as in the slump of the early 1990s – with worse to come.
Conscious of the crisis facing the property market and the building industry, the Housing Minister, Caroline Flint, is today expected to announce a scheme to hasten the speed at which the Government responds to offers to buy property from housebuilders.
A new "national clearing house" will be established, whereby builders can approach the Housing Corporation with "robust proposals" to sell their unsold stock for affordable housing. The Government has committed £200m for affordable housing. At a relatively modest price of £150,000 per property, the scheme would add a mere 1,400 homes to the stock of public housing. The Government's goal of building three million homes by 2020 has also been affected by some early subsidence.
Only a few months ago, the consensus view was that house prices would be broadly flat during 2008, but the most pessimistic observers are now predicting a much worse outcome. Seema Shah, a property specialist at Capital Economics, said: "The bottom line is that the housing market is in only the early stages of a deep and extended correction. Our forecast is for house prices to fall by 15 per cent this year, and to continue falling in 2009 and 2010."
Apart from a barely positive performance in Scotland, no nation or region has escaped the destruction of property values. House prices fell by an alarming 18.6 per cent on the year in Northern Ireland, well and truly popping its short-lived bubble. Wales was next worst, with prices slumping by 7.6 per cent.
Yet such price falls, which are usually good news for those trying to get their feet on the first rung of the housing ladder, are not yet enough to make much difference to affordability. Even with the recent slowdown, prices remain at historically high levels compared to people's incomes, and the credit crunch has cut off the supply of lending into the market. This week the Bank of England reported a virtual collapse in new mortgage approvals – down 70 per cent on the year – and lenders have been withdrawing 100 per cent mortgages and other generous offers in favour of much tighter lending criteria and higher deposits.
As recently as 2005, a first-time buyer would need to find, on average, about £10,000 for their deposit; that has now risen to £16,000, up 60 per cent. Average two-year fixed mortgage rates are at an 11-year high and above 7 per cent, according to the financial website Moneyfacts. Arrangement fees have also risen sharply.
Professor Stephen Nickell, the chairman of the National Housing and Planning Advice Unit, and a senior adviser to the Prime Minister, warned that even if house prices fell by 15 per cent, affordability prospects would not improve. "With affordability stretched and mortgage finance much harder to secure and more expensive, even with house prices falling the outlook for first-time buyers is very difficult," he said. In the medium term, he added, the eventual easing of financial conditions may coincide with a renewed shortage of new housing, as construction has virtually ground to a halt. That could push prices up again as supply dries up.
The Construction Products Association forecast recently that there would be 147,000 new housing starts this year, a fall of 27 per cent from 2007 and the smallest number since 1945. Yesterday, the Royal Institution of Chartered Surveyors reported that the private housing sector had seen its workloads decline at the fastest rate in the survey's history.
Some of Britain's biggest housebuilders, such as Taylor Wimpey and Persimmon, face severe financial difficulty, and many have simply ceased building. The failure of a major building firm would lead to an even deeper crisis. A severe housing slump, coupled with the collapse in housing transactions of about 50 per cent seen this year, could easily push Britain's faltering economy into recession.
Four sellers in search of a buyer
Caroline Faircloth, 50, Exeter: 'Looking at two years of letting'
I put my house on the market in November because I wanted to buy a place elsewhere in Exeter. My house remained available for a couple of months, but because of the downturn in prices, and because I had to fund a new property elsewhere, I decided to let it out rather than risk taking a big hit. My short-term plan was to let it out for about six months, and then sell it on, but now I've had to revise that considerably, because nobody will buy it if I put it back on the market. It's worth remembering that letting is extremely expensive. I'm now looking at between two and four years of letting it out, after which I hope to be able to sell it.
Chris Coe, 50, Stansted, Essex: 'There's just nobody looking to buy now'
I have a five-bedroom Tudor house that has been on the market since September. It went on just before the credit crunch kicked in and the daily reports of financialturmoil on both sides of the Atlantic started. Nobody could foresee that we would be in this position, but nearly nine months later I still haven't sold the house.
I don't want to rent the house out. I'm still looking for a buyer and I suppose that all we can do is remain optimistic. I'm positive the market will pick up again, but right now there's nobody looking. I've just had very, very few people round to inspect. This is despite the fact that it's an attractive house with easy access to an airport and also for commuters to London.
Perception is everything, and perceptions of our economic plight have been exaggerated.
Christopher Moule, 36, East Renfrewshire: 'We sold quickly and got more than we expected'
My wife and I are relocating to the Highlands and needed to sell our house just outside Glasgow. We were quite worried about putting it on the market because we had seen reports that the market was in trouble. But in fact it proved remarkably easy. We had several viewers booked in from almost the minute we put it up for sale, and we sold less than three weeks after.
Selling quickly wasn't the only advantage we had: we also got more money for it than we expected. Having put it on the market at £190,000, we were delighted to be offered £239,000. It's a 3-bedroom Victorian terraced house on a main road in a desirable area, but we were still surprised. All the news of doom and gloom doesn't tally with our personal experience. I'd suggest people come north of the border if they want to do well out of property.
Ian Robinson, 55, Oxfordshire: 'I will rent it out, ride the storm then sell after'
I put a house I had been developing for a year on the market at the start of April. By the first weekend I'd had 10 viewings and by the second I had agreed an offer. But five weeks after that, on the morning that I was due to exchange, my buyer's buyer pulled out, leaving me completely stuffed. Since then I've had huge difficulty in selling the house. The offer I initially accepted was for £990,000, and I have subsequently had offers of £900,000, so that's a 10 per cent fall. I'm not happy with that level of offer so I have decided to rent it out for a couple of years, ride out the storm, and then sell on after. I think the problems in the housing market have been aggravated by the media, but it's not at all been helped by the irresponsible behaviour of the banks. Doubtless things will get better in time because we have finite land in this country and a finite housing stock. For now, however, the renting market is strong and renting will have to be a short-term fix.