U.K. Home Prices Drop Most Since 2002, Rightmove Says

By Svenja O'Donnell

July 21 (Bloomberg) -- U.K. house prices dropped in July from a year earlier for the first time since Rightmove Plc started measuring them in 2002, as the squeeze on lending pushed up the number of unsold properties to a record.

The average asking price for a home fell an annual 2 percent to 235,219 pounds ($469,544), Britain's most-used property Web site said in a statement today. On the month, prices declined 1.8 percent, the biggest drop since December. Prices increased in London by 0.3 percent from June.

House prices will fall about 10 percent this year and 6 percent in 2009, the Ernst & Young Item Club, a forecasting group which uses the same model as the Treasury, said today. Britons, laden with a record 1.4 trillion pounds of debt, are struggling to afford homes as banks curb lending and credit costs increase.

``Banks need to be careful they do not get blamed for a second crash in 20 years'' by limiting loans, Miles Shipside, commercial director of Rightmove, said in the statement. ``The `doom and gloom' attitude should be about the drastically low levels of sales which affect the wider economy.''

House prices may fall further by as much as 30 percent and unemployment will increase as the U.K. slips into a recession, Bank of England policy maker David Blanchflower said in an interview published in the Guardian today. The economy may already be contracting, the newspaper cited him as saying.

Pound Drops

The pound fell against the dollar after Rightmove's report and Blanchflower's comments. The U.K. currency slid to $1.9921 as of 8:36 a.m. in London, from $1.9989 late in New York on July 18.

The stock of unsold property per real-estate agent rose for a sixth month to 77, the highest ever measured by Rightmove, from 74 in June. Prices for properties in the West Midlands fell the most on the month, declining 3.7 percent. London was the only region to show an increase in prices, the report showed.

Property sales dropped to the lowest in at least 30 years, the Royal Institution of Chartered Surveyors said July 15. The Item Club forecast today that housing transactions will drop 35 percent this year.

Demand for commercial property dropped in the second quarter to the lowest in at least a decade, RICS said today. Fifty percent more surveyors reported a drop in demand than those reporting an increase, the report showed.

Home Loans

Mortgage approvals fell to their lowest level in at least nine years in May, the Bank of England said on June 30. Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $423 billion in losses and writedowns.

HBOS Plc, the U.K.'s biggest mortgage lender, said last week that house prices, which tripled in the past decade, dropped in June from a year earlier by the most since 1992. Bank of England policy maker Andrew Sentance said in an interview last week that there is ``clearly a risk'' that house prices will fall further.

Consumer-price increases and the worst housing-market slump since the last recession have eroded living standards and helped push the support for Prime Minister Gordon Brown's ruling Labour Party close to the lowest level since World War II.

The Bank of England's Monetary Policy Committee has kept the benchmark interest-rate unchanged at 5 percent for the past three months as it tries to curb consumer spending while keeping the economy from falling into a recession. Inflation accelerated to 3.8 percent in June, the fastest pace in 11 years.

The economy will grow 1.5 percent this year and then 1 percent in 2009, the weakest pace since 1992, the Item Club said in a statement today. The group predicted that slowing expansion will allow the Bank of England to cut the benchmark interest rate to 4 percent by the end of 2009.

``This will help to put a cushion under the level of demand in the economy and set the scene for a recovery in 2010,'' said Peter Spencer, economic adviser to the Item Club and a former U.K. Treasury official.

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