The worst year ever for house prices

Government forced to bail out housebuilder as survey reveals scale of 2008 falls

Amol Rajan,Leila Nathoo
Wednesday 07 January 2009 01:00

Bovis Homes has been forced to sell hundreds of unwanted houses to the Government, it emerged yesterday in further evidence of weakness in the property market. The developer sold 379 homes in the South-west, West Midlands, East Midlands and East of England in an £18m deal with the Government to provide affordable housing for poor families on waiting lists.

Local housing associations will provide additional funding for the properties. Bovis last night refused to say how much each property was sold for.

David Ritchie, chief executive of Bovis Homes, said: "I can confirm that these properties have been sold at a discount to market value. It was important for us to sell surplus stock while returning a positive margin."

News of the deal emerged as new figures revealed the sharpest annual drop in British house prices ever recorded, with a 15.9 per cent plunge over 2008.

Further steep falls in the property market were also predicted by Nationwide, the building society, for the year ahead. The average price of a house in Britain is now £153,048 – £20,000 less than in December 2007.

Four out of five of the worst-affected cities across the UK were in England, with Bristol, Bradford, Northampton and Norwich all recording a 17 per cent drop. Of the nations, Northern Ireland suffered most heavily with an unprecedented 34.2 per cent drop over the year, a drastic correction following two years of rapid growth. Average house prices fell from £224,816 to £147,833, with a 33 per cent drop in Belfast alone.

In England, house prices fell by 14.8 per cent overall and 16.6 per cent in East Anglia – which was the worst hit among the English regions.

London recorded a fall of 15 per cent, slightly lower than the record 16.7 per cent crash of the early 1990s, but remains the most expensive place to buy a home. The average price of a London home is £257,963, compared with £171,924 across England.

Four English cities were among the five best-performing areas. In Birmingham and Newcastle, house prices fell by an average of 9 per cent. In Leicester, prices fell by 7 per cent, while Durham recorded the lowest decline in the country, at 4 per cent.

Fionnuala Earley, chief economist at Nationwide, said the regional variations reflected the pattern of rising unemployment in each region.

"Things have changed so fast throughout the year. Our predictions this time last year were way out, but with hindsight, the rapid falls in house prices make sense," she said.

"Regional differences in house price trends match up to where employment has been affected. For example, rapidly falling prices in London and the South-east are linked to the shrinkage of the financial services market. There are similar patterns in the North, although not quite to the same extent, so we have witnessed some shift in the north-south balance."

Of all the regions, Scotland saw the smallest decline in house prices at 8.1 per cent. During the final quarter of the year, prices rose by a marginal 0.1 per cent, so that the average price of a home in Scotland is now £138,941, compared with £151,178 at the end of 2007.

House prices in Edinburgh fell by 6 per cent – the second lowest drop of any British city. Average prices in Wales fared worse than Scotland but better than England, declining by 12.1 per cent.

According to Nationwide, the market could recover quickly after prices bottom out because of the pent-up demand of up to 750,000 first-time buyers priced out of the market since 2003.

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