House prices in the UK fell by 0.6 per cent during March, the latest Nationwide house price index has shown.
This represents the fifth consecutive monthly fall in prices across the country, following a 0.5 per cent fall in January, and sees annual growth drop to just 1.1 per cent.
According to the nation’s second-largest mortgage lender, price growth is now at its slowest rate for some 12 years.
The drop means the average mortgage now stands at 179,110, a figure only £2,027 higher than at the same point in 2007.
In response to the findings, Nationwide stated it now expected a modest fall in house prices during 2008, with the company’s chief economist Fionnuala Earley citing a “clear change in sentiment in the market since the late summer”.
“A moderate fall in house prices at this stage should not be unwelcome and should help to ensure stability in the market going forward,” added Ms Earley.
The slowdown has been exacerbated by the on going global credit crunch, which has seen lenders remove higher risk mortgage products from the market and restrict criteria for borrowing.
This has made finance difficult to obtain for homebuyers and reduced demand in the market.
Yet, shortages in supply across some parts of the country and a strong economy generally, especially in terms of employment, have thus far prevented wider drops.
Price speculation may also have contributed to the present decline, according to Nationwide.
“Expectations of higher house prices will have undoubtedly encouraged some speculative demand in the housing market over the years,” added Ms Earley.
“But with lower house price growth expected now and in the future, the effect will work the other way, causing at least some of this demand to fall away.”
However, Nationwide was quick to quell speculation of a house price crash, arguing the present declines must be seen in context, pointing out prices remain 11 per cent higher than they were two years ago.
They are also some 47 per cent up on those of five years ago, following a period of unparalleled growth.
In response to the cuts Nationwide now expects the Bank of England to cut interest rates sooner rather than later.
“The collapse of Bear Stearns and the fallout from false rumours of problems in a major UK bank may have helped to shift the focus of the monetary policy committee (MPC) to the need to loosen conditions in the financial markets,” explained Ms Earley.
“We think these latest developments, along with the continued weakening in the housing market, will mean that the MPC will bring forward its rate cut to April.”
The MPC meets on April 9-10th to make a decision on the future direction of interest rates, following cuts in December and February, brining the rate down to 5.25 per cent.
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