House prices fell for the first time in more than two years in October, as the combination of rising interest rates and the effects of the credit crunch began to take their toll on UK homes.
According to the latest survey from Hometrack, house prices fell 0.1 per cent between September and October, although are still up by 4.4 per cent on an annual basis. The average time that properties have spent on the market was also up quite sharply, from 6.9 to 7.4 weeks. However, the number of new homeowners putting their houses up for sale with estate agents fell by 6.4 per cent.
On average, prices fell between 0.1 and 0.2 per cent across most regions of the country, with the exception of the West Midlands, where they stayed the same.
"The fall in prices over October is not unexpected," said Richard Donnell, director of research at Hometrack. "After several months of weaker buyer confidence, falling levels of demand and declining sales volumes, prices were bound to be affected. We expect further small price falls in the months ahead but these are likely to remain limited as there remains no evidence of any increase in the supply of homes for sale. If anything, the current uncertainty appears to be resulting in a decline in the numbers of homes coming to the market, which is likely to support underlying prices."
The slowdown in house price growth comes on the back of five interest rate rises over the 11 months to July this year, increasing the cost of borrowing by more than 25 per cent. The recent credit crunch has also begun to affect the banks' attitude to lending, with many tightening their criteria for new mortgage customers.
"The last time we saw a similar fall in demand was in 2005, but this was accompanied by a sizable increase in the supply of homes for sale," added Mr Donnell. "This is currently not the case and we expect headline price falls to be relatively limited in the run-up to Christmas."Reuse content