Bloomberg News

U.K. House Prices Drop to 2 1/2-Year Low Before ‘Uncertain’ 2012

January 08, 2012

Jan. 6 (Bloomberg) -- Britain’s property market faces an “uncertain” year after a weakening economic recovery dragged house prices to their lowest level in 2 1/2 years, Halifax said.

Values dropped 0.9 percent to an average 160,063 pounds ($248,000) last month, the cheapest since July 2009, the unit of London-based Lloyds Banking Group Plc, Britain’s No.1 mortgage provider, said today. Values fell 2.2 percent from a year ago.

U.K. economic growth probably stagnated in the fourth quarter, according to the Bank of England, while rising unemployment and the euro-area debt crisis are undermining consumer confidence and property demand. At the same time, banks expect to toughen lending terms because of strains in funding markets, making it harder for people to get mortgages.

“Low wage growth, a markedly weakening labor market and major concerns over the economic outlook will limit potential buyers,” said Howard Archer, an economist at IHS Global Insight in London. “These factors are seen outweighing the support to house prices coming from extended very low interest rates.”

The Bank of England will probably keep its benchmark interest rate at a record-low 0.5 percent this month, helping to keep mortgage costs low, according to all 44 economists in a Bloomberg News survey. It’s been at that level since March 2009. The central bank will also hold its asset-purchase target at 275 billion pounds, all but one of 31 economists in another survey said.

House-Price Outlook

Halifax forecast last month that property values will rise or fall no more than 2 percent this year as the balance between weak demand and a shortage of supply leaves the market without direction. Nationwide Building Society and property researcher Hometrack Ltd. have both forecast a decline in prices.

“If the U.K. can avoid recession, we expect broad stability in house prices in 2012,” Halifax economist Martin Ellis said in the statement. “There is, however, considerable uncertainty regarding the prospects for the U.K. economy which will, to a large extent, depend on how events in the euro zone unfold.”

In the fourth quarter, home values fell 0.1 percent from the previous three months and were down 1.3 percent from a year earlier, Halifax said. Noting the annual decline, Ellis said prices “held up well in the face of the difficult and deteriorating economic climate and substantial pressure on households’ finances.”

In 2011, prices fell for six months, rose in five and were unchanged in one month. Data from the Bank of England this week showed mortgage approvals were little changed in November, underlining the fragility of the housing market.

In a survey published yesterday, the central bank said lenders expect the proportion of mortgage applications being approved to fall in the current quarter as they tighten the credit-scoring criteria on home loans.

“Although lenders expected a small increase in overall credit availability in the coming three months, factors such as the economic outlook and tighter wholesale funding conditions were expected to impact negatively,” it said. “Developments in the euro area and their impact on banks’ funding conditions would be a key determinant.”

--With assistance from Mark Evans in London. Editors: Fergal O’Brien, Craig Stirling

To contact the reporter on this story: Scott Hamilton in London at

To contact the editor responsible for this story: Craig Stirling at

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