lending squeeze mars uk house prices  
19 August 2008

The average asking price for a home fell 4,8% in August from a year earlier to £229816, the biggest yearly drop since estate agent Rightmove began measuring home values six years ago. Britain’s most-used property website also said prices dropped 2,3% on the month, the most since December, led by London.  “The lack of mortgage finance is central to the problem,” Rightmove commercial director Miles Shipside said. “London, in particular, appears to be having its own special summer sale, with more than £21000 off in a month.”

Bank of England governor Mervyn King said last week the housing market faced “a significant adjustment” as banks ration loans for buyers. Falling prices may worsen the economic slowdown as the threat of a recession looms and unemployment rises the most in 16 years.

Prices in London fell 5,3% on the month and 3,8% from a year earlier. Each of the 32 districts in the capital showed a decline, and the biggest drop was in the southwest area of Wandsworth, where values fell 7,9%. Hackney, in east London, was the best performer, with a 0,6% decline.  The stock of unsold property per real estate agent rose for a seventh month to 78, from 77 in July. The number of transactions could reach the lowest since 1959, Rightmove said.

Banks have starved the market of loans after more than $500bn in losses and write-downs worldwide from the US mortgage market collapse. UK mortgage approvals fell to the lowest since at least 1999 in June, the Bank of England said on July 29. The Royal Institution of Chartered Surveyors said last week the housing market was at a “virtual standstill”.

King said last Wednesday “there is a feeling of chill in the economic air” and “the British economy is going through a difficult and painful adjustment” that “cannot be avoided”.  Weakness in the housing market may “amplify” the effect of the lending squeeze on household spending, the central bank said last week.

The British Chambers of Commerce (BCC) said in a report published on Sunday there was a “distinct possibility” of the country facing recession in the next six or nine months.  In its quarterly economic forecast, the BCC said that while a big downturn was unlikely, a cut in interest rates was necessary to counter the threat of serious problems.  “Our quarterly economic forecast highlights a significant worsening in UK economic prospects,” said David Kern, the BCC’s economic adviser. “There is now a distinct possibility of technical recession.”
He said unemployment would climb up to 300000 in the next two to three years. It might reach almost 2-million.

Sapa, Svenja O’Donnell,  www.businessday.co.za