House prices fell to their lowest level for 15 months in August, a survey published today reveals, as the number of potential buyers continues to be limited by a shortage of mortgage finance.
The Royal Institute of Chartered Surveyors (Rics) says a greater number of surveyors reported falling prices last month than those that saw increases, with an index of views dropping by eight points to minus 32, the lowest level since May 2009.
The fall is a result of an increased number of sellers, coupled with fewer new buyers, creating a larger pool of available property and, consequently, lower prices.
Rics' update comes a day after the Council of Mortgage Lenders (CML) reported a continued reluctance among mortgage providers to lend to first-time buyers. Despite the overall number of home loans increasing by 7 per cent in July, compared to June, the number of mortgages written to first-time buyers fell by 2 per cent.
First-time buyers were on average being asked for deposits of 24 per cent in July, up from 21 per cent in April and May. Overall, the CML said that mortgage volumes "still represent a very weak market".
The situation last week prompted Steve Morgan, the chairman of housebuilder Redrow, to call on the Government to establish an insurance indemnity scheme to support first-time buyers, arguing that a lack of home loans was hampering the sector.
Rics reports that expectations of future sales have begun to pick up, with 18 per cent more surveyors expecting sales to rise in the next three months, up from 8 per cent in July.
It argues that this rise in sentiment may be attributed to the view that a dip in house prices will begin to tempt more buyers back to the market over the coming months. Expectations on prices remain muted, however, with an increasing number of surveyors seeing even softer prices in future months.
"The latest set of results suggests prices in many parts of the country may be slipping but this does appear to be encouraging hopes amongst surveyors that sales levels could begin to pick up as a result," said Jeremy Leaf, a Rics spokesman.
"That said, there can be little doubt that the restrictive attitude to the provision of mortgage finance will continue to limit transaction activity in the market," he added.
The housing market has completely changed in the last 12 months. The Halifax house price index in December last year showed that house prices had jumped by a bigger than expected 1.4 per cent in November 2009, spurred on by higher demand and a shortage of properties for sale.
However, analysts expect the current trend of house price falls to continue. "If you look at house prices versus indicators like prices or income, we reckon that prices are still 20 to 25 per cent too high," said Ed Stansfield, chief property economist at Capital Economics.
"The real question is whether or not prices can come down without derailing the economic recovery. We've got a falling market and there is little that can be done in terms of reducing interest rates to help encourage activity. And all this is before the impact of the planned fiscal tightening is seen."
Despite the downbeat housing numbers, consumer confidence is returning. The Nationwide Consumer Confidence Index for August, published today, shows that despite next month's Government spending review, which will introduce a range of spending cuts, the mood among consumers is improving. The index rose by 5 points to 61 last month, a similar level to a year ago.
Nevertheless, even after the August gains the index stands well below the long-term average of 83 and, similarly to the Rics data, Nationwide finds heightened pessimism towards the housing market. Consumers now expect the value of their homes to decrease by 0.1 per cent in the next six months, a half percentage point decrease on July when people believed their properties would increase in value.
"Downward pressure is likely to be placed on confidence in the shape of speculation over public spending cuts, a stuttering housing market and a difficult job market," said Mark Saddleton, Nationwide's head of economic and market analysis. "September's results should help to paint a clearer picture as we move into the final quarter of 2010."