House prices plummet, but first-time buyers see no benefit

The average house in Britain saw nearly £5,000 wiped off its value during March – the biggest monthly fall in property prices since the early Nineties, according to the country's biggest mortgage lender.

Halifax released data yesterday showing that the average cost of a house sank 2.5 per cent last month, the second-largest drop since records began and the biggest since September 1992, when prices fell 3 per cent.

The new figures boosted fears that the global credit crunch and stretched affordability following previous periods of strong price growth are having a detrimental effect on property prices. Last month's fall follows a 0.3 per cent drop in February, meaning average prices are down 1 per cent in the first quarter of the year.

The statistics showed some regions are seeing sharper falls than others. Homes in the West Midlands dropped 5 per cent in the first three months this year, double the average fall nationwide, while Wales and the South-west saw drops of 4.7 per cent and 2.6 per cent respectively. Prices in the East Midlands, however, went up by 2.2 per cent and in Greater London they rose by 1.6 per cent.

The price fall will be of concern to new homeowners, who may see their property's value fall below the price they bought it for. Analysts warn that hundreds of thousands of people could find themselves in negative equity by the end of 2008, saying that year-on-year house price inflation is now negative for the first time since 1996.

But, bucking the recent trend, HSBC announced last night that it would match existing deals for two years for homeowners whose fixed-rate deals with other lenders were coming to an end.

But the market is particularly gloomy for first-time buyers. This week Abbey said it was withdrawing 100 per cent mortgage products, meaning just two lenders are offering mortgages with no deposit – down from 123 a year ago. Most first-time buyers require a deposit of at least 5 per cent – nearly £10,000 at the average house price of £191,556.

Figures from the Council of Mortgage Lenders revealed yesterday that fewer people are taking out mortgages, February being the fourth consecutive month that the number of applications fell. In all, 49,000 mortgages were accepted, 30 per cent less than the same period last year and the lowest monthly figure since 2002.

Philip Shaw, chief economist at Investec, said the current lending market has made it particularly difficult for first-time buyers to get on the property ladder. "Falls in house prices are cold comfort if you are unable to find a mortgage," he said.

The forecast is likely to increase pressure on the Bank of England to cut interest rates by a further quarter point to 5 per cent, but mortgage lenders and banks are unlikely to pass on any such cut to borrowers.