House prices register their steepest drop on record

HOUSE prices recorded their sharpest fall in modern times last month, dropping by 3.1 per cent, according to the latest index published by the Halifax Building Society.

That is the largest monthly drop recorded by the Halifax since it began keeping records in 1983, and is probably the biggest since 1945. It brings the annual rate to 7.5 per cent. The picture is most depressing in London and the South-east. In Greater London, prices fell by 9.8 per cent in the past year. Houses in the South-east dropped 8.5 per cent, while East Anglia, Wales and the South-west experienced annual falls of more than 5 per cent.

The falls mean that housebuyers in these regions who bought a year ago with the usual maximum mortgage of 95 per cent of a property's value would now be trapped with negative equity, holding a mortgage larger than the value of their homes. In August, the Bank of England estimated that British home-owners collectively held pounds 6bn of negative equity.

Gary Marsh, the Halifax's economist, said: 'September was a funny month, coming after the August rush to beat the deadline for the reimposition of stamp duty.' He expected prices to steady next month. John Wriglesworth, of the stockbrokers UBS Phillips & Drew, believes that there are 1.5 million people in the debt trap. 'It's an unhappy state of affairs, to say the least. First-time buyers are not going to come into the market if they fear that they will lose their deposit,' he said.

Adrian Coles, of the Council of Mortgage Lenders, said: 'I shouldn't pay too much attention to one month. Everybody who could buy and sell before August 19 has done so.' Many who missed the deadline forced sellers to reduce the price by 1 per cent to cover stamp duty.