House prices 'fall to 2004 level'

Jeremy Leaf of the Royal Institute of Chartered Surveyors on the housing market's troubles

The average price of a UK home has fallen to levels not seen since August 2004, according to the Halifax.

Prices declined by 2.2% in December, to bring the average cost down to £159,896, the lender said.

For 2008 as a whole, prices fell 16.2%, the biggest annual decline since Halifax began keeping records in 1983.

Halifax also said homes were more affordable than at any time since April 2003, when set against earnings. But getting a mortgage is harder for many.

The figures came as data from the Bank of England showed the number of mortgage approvals fell to 27,000 in November - at least a nine-year low.

This was the lowest figure since the series began in January 1999.

The number of mortgages approved, but not yet lent, is seen as a good indicator of medium-term trends in lending.

Subdued

In monetary terms, mortgage lending rose by £740m in November, but that was still less than a 10th of the amount seen in the same month in 2007.

The figures are the latest indication of the extent of the housing downturn and are likely to increase pressure on the commercial banks to start to raise lending levels.

These are still subdued as a result of the financial crisis, despite efforts by the Bank of England to help the banks improve their liquidity.

The Bank's own Credit Conditions Survey - also released on Friday - said commercial banks and building societies planned to continue to cut back on lending to individuals and businesses, both in terms of mortgages and other loans.

Howard Archer of IHS Global Insight said: "This bodes ill for business activity, investment, employment, consumer spending and housing market activity".

Rate row

The Halifax said house prices were likely to continue to fall for some time, although stability was returning to market activity, "albeit at a low level".

"Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert future downward pressure on the market over the coming months," said Halifax chief economist Martin Ellis.

Mr Archer now predicts that house prices will fall by a further 15% in 2009.

He said there was "a powerful set of negative factors weighing down on the housing market", including continuing tight credit conditions, rising unemployment, and "widespread expectations that house prices are likely to fall a lot further".

The latest housing and mortgage data came as the Nationwide Building Society said it would not pass on any further cuts in UK interest rates to most of its tracker mortgage customers.

A clause in the contracts of 250,000 customers says the Nationwide does not have to lower its rates when the Bank of England's rate falls below 2.75%.

While it did not enforce this when the Bank Rate fell to 2% in December, it now says rates will fall no further.