House prices set to decline despite small December rise

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Economists have warned that further house price falls are on the way, despite figures from the Halifax bank showing that property values rose last month.

House prices increased by 1.3 per cent in December after three successive monthly falls. However, over the last quarter of 2007 prices were down 0.8 per cent from the third quarter. This is the first quarterly fall since the second quarter of 2000, and the biggest since the second quarter of 1995. Overall, house prices in December stood 5.2 per cent higher than a year before, with the average home put at 197,039.

The housing market slowdown was further confirmed by figures from the Council of Mortgage Lenders (CML) which showed that the number of new mortgages had fallen to a seven-month low in November. A total of 80,000 loans were taken out by home-movers during November, 3.1 per cent less than in October, while their value fell to 12.2bn, the lowest level since April last year. Anticipation of future interest rate cuts may have something to do with the slowdown.

The CML said the proportion of borrowers taking out fixed-rate mortgages fell for the fifth successive month to 65 per cent, from 68 per cent in October and a peak of 77 per cent in June. However, the reluctance of some lenders to pass on reductions in the Bank of England's base rate may stymie the market for longer than the authorities anticipate. The CML added that the credit crunch had not yet had an appreciable effect on the affordability of mortgages, which improved slightly.

Malcolm Barr, UK economist at JPMorgan, said: "As much as this morning's Halifax data may moderate expectations of the magnitude of the decline that is in store, we continue to be surprised at the speed in which momentum in house price gains has faded. That lenders have begun to cite the expectation of house price falls as a reason to tighten credit availability, and the data have moved to confirm those expectations, remains a significant worry." Ed Stansfield, property economist at Capital Economics, said: "Further house price falls are on their way."

The effect of a subdued real estate market on consumer sentiment is clear from the latest Nationwide survey of consumer confidence, which has fallen to its lowest level since February last year. Continuing economic uncertainty and the impact of higher food and petrol prices continued to shake morale.

However, not all players in the property market are suffering. Savills, the up-market estate agency and wealth management company, said 2007 profits were set to beat forecasts as the credit squeeze failed to dent demand for high-end properties, where prices had remained "relatively firm".