Asking prices slashed as house buyers feel pinch

Homeowners selling property are cutting their asking prices in the run-up to Christmas in what could be the first sign that sellers are responding to growing pressure on buyers' finances from rising interest rates and fuel bills, two reports show today.

The National Association of Estate Agents (NAEA) said that sellers slashed almost 7 per cent off asking prices between October and November.

The number of sales falling through rose to one in 11 from one in 12 in October. "This could be due to the rise in interest rates to 5 per cent at the beginning of November," it said. "Buyers who were already stretching their budgets in order to buy their desired properties are likely to have had to pull out of sales due to the increased mortgage repayments."

Charles Smailes, the NAEA's president, said that the recent rate rises had "flattened" the market in some areas while others were thriving. "A further rate rise would clearly have a detrimental effect on the areas that are now struggling," he said.

The property website Rightmove reported falls in asking prices in seven of the 10 regions of England and Wales, led by a 3.3 per cent slump in the South-west of England and 2.7 per cent in the North.

The average price in estate agents' windows and websites dipped by 0.3 per cent over the three weeks to 2 December.

However, there was no sign of a slowdown in London, where sellers raised their prices by 2.9 per cent, with one borough, Islington, in the north of the capital, hiking them by almost 7 per cent in the last month alone.

The latest rise took the average asking price in the capital to 23.6 per cent more than a year ago, the highest ever recorded by Rightmove. It said that the slowdown across the majority of the regions could be put down to seasonal factors rather than a direct impact of the two increases in interest rates since August.

But Miles Shipside, its commercial director, said: "For buyers, the small fall this month may indicate that sellers will talk turkey on their prices over Christmas."

On Thursday, Halifax said that rising utility bills and a slowdown in the growth in incomes would feed through to the housing market next year.

The hefty pace of increases so far this year have taken City economists by surprise, although many agree that there is little room for further inflation-busting rises.

Howard Archer, chief UK economist at Global Insight, said: "House prices are likely to remain buoyant in the near term as pricing power is currently significantly tilted towards the vendor.

"Nevertheless growing affordability pressures resulting from higher interest rates, muted real earnings growth and elevated house prices will increasingly feed through over the coming months to squeeze buyers out and curb house price rises."