Prices fall but rates 'may not help buyers'

28-Dec-2007

The latest index from Nationwide has revealed that house prices fell by 0.5 per cent in December, the second consecutive monthly drop, but the lender has urged caution with regard to prospects for future rate cuts.

The group's study put house price inflation for 2007 as a whole at 4.8 per cent, but noted that the credit crunch has significantly increased the extent of the slowdown in recent months.

But cautionary measures by the Bank of England will likely stabilise the market rather than allow many more to get onto the ladder once again, Nationwide has said.

"It is true that lower interest rates will probably help market activity recover somewhat later in 2008, as lower house price growth restores some affordability and allows pent-up demand from first time buyers to be released," acknowledged Fionnuala Earley, chief economist at Nationwide.

"However, it seems unlikely that there will be a big recovery in activity and prices mirroring the 2005 experience. This is mainly because housing affordability is starting from a much worse position than in 2005, while interest rate cuts have started from a higher and more restrictive level," Ms Earley added.

The study comes as the British Bankers' Association (BBA) has revealed that mortgage approvals for house purchases in November remained close to the extreme lows seen in October, suggesting that new buyers may still be obliged to look to shared equity and other innovative schemes to get onto the housing ladder in the future.

Average house prices 'down by £2,000' in November.


Mortgage market 'not as bad as first expected'

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