House prices record largest monthly fall since 1991

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by Kay Murchie

According to the Nationwide building society’s latest monthly survey, UK house prices fell 2.5% in May - the largest monthly fall for 17 years.

It was the seventh consecutive monthly fall, making it the longest consecutive period of decline since 1992. Prices are now 4.4% lower compared with this time last year which equates to a fall of £8,000, this has taken the average UK house price down to £173,583.

Commenting on the fall, Howard Archer, chief UK economist at Global Insight, said the fall is a real shock and will fuel concern that we are now headed for a sharp correction.

The downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is increasingly biting. It now looks more likely than not that house prices will suffer double-digit falls both this year and next, added Mr Archer.

As a result of the credit crunch, mortgage lending has dried up. A recent report by Moneyfacts revealed that there are now 3,847 mortgage products available (including residential, sub-prime and buy to let), compared to 4,054 a month ago and 15,599 in July 2007.

The tumbling of house prices also means estate agents are suffering. Business monitor company, Debtwire, said the number of estate agencies has dropped from 13,000 to 12,000 already this year.

Solicitors who focus on conveyancing could also be affected by the fall in house prices, according to the Royal Institution of Chartered Surveyors (Rics).

However, Nationwide’s chief economist, Fionnuala-Earley, said Britain is in a stronger position than in the 1990s. It is well-placed to weather the storm as fewer homeowners bought at the top of the cycle and, even taking into account the recent borrowing binge, buyers typically put down a larger deposit than before the last crash.

Rics predicts that house prices will fall by 5% by the end of the 2008. However, many economists believe the drop could be as much as 30%.