U.K. House Prices Drop the Most This Year, Rightmove Says

By Svenja O'Donnell

U.K. house prices declined by the most this year in June as buyers shunned the market, deepening Britain's property slump, Rightmove Plc said.

The average asking price for a home dropped 1.2 percent from May to 239,564 pounds ($473,000), Britain's most-used property Web site said in a statement today. Prices in London declined 1.4 percent. On the year, the cost of a U.K. home rose 0.1 percent.

``New sellers are now taking some proactive steps to price more realistically from the outset, to attract increasingly hard-pressed buyers,'' Miles Shipside, commercial director of Rightmove, said in a statement.

HBOS Plc, the U.K.'s biggest mortgage lender, predicted last week that house prices will fall as much as 9 percent this year, raising loan defaults, and Bank of England Deputy Governor John Gieve said the drop is hurting consumer confidence. The downturn has deepened after the worldwide jump in credit costs forced banks to curb lending and make mortgages more expensive.

The ratio of available properties to potential buyers doubled on the year, reaching 15 to one, the report showed. Home values fell on the month in every region except the North, the West Midlands, and Wales. Properties in the South East led declines, falling 2.4 percent.

In the capital, Hounslow, near Heathrow airport, led the drop, falling 4.4 percent. Only five out of 32 areas in London rose, with the biggest gain in Islington.

`Stretched' Affordability

The declines ``should go some way to helping buyers whose affordability is being stretched still further by rising inflation and mortgage rates,'' Shipside said.

Record oil and food prices, falling house prices and a dearth of credit are pushing the U.K. economy toward a recession. Gieve said on June 19 that house prices have now dropped 7 percent from their peak and will fall further, threatening consumer sentiment.

Consumer confidence fell to the lowest level since Margaret Thatcher was ousted as prime minister in 1990, a GfK NOP survey showed on May 30.

Bank of England Governor Mervyn King said on June 18 that curbing inflation will require economic growth to slow and living standards to drop. King wrote a letter of explanation to the government last week after consumer-price increases exceeded the 3 percent limit in May. He predicted inflation may exceed 4 percent this year.

The central bank has kept its benchmark interest rate on hold after reducing it to 5 percent in April, the third cut since December. JPMorgan Chase & Co. economists forecast last week that the next move will be an increase in August.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.